Company Quick10K Filing
First Capital
Price58.75 EPS3
Shares3 P/E19
MCap198 P/FCF24
Net Debt0 EBIT14
TEV198 TEV/EBIT14
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-13
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-08
10-Q 2017-03-31 Filed 2017-05-09
10-K 2016-12-31 Filed 2017-03-14
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-29
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-27
10-Q 2014-09-30 Filed 2014-11-12
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-13
10-K 2013-12-31 Filed 2014-03-27
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-13
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-13
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-22
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-25
10-Q 2010-09-30 Filed 2010-11-10
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-12
10-K 2009-12-31 Filed 2010-03-30
8-K 2020-05-27
8-K 2020-04-27
8-K 2020-02-19
8-K 2020-01-23
8-K 2020-01-14
8-K 2019-10-18
8-K 2019-09-05
8-K 2019-07-24
8-K 2019-05-22
8-K 2019-04-24
8-K 2019-02-21
8-K 2019-01-23
8-K 2018-10-19
8-K 2018-09-06
8-K 2018-07-27
8-K 2018-07-16
8-K 2018-05-23
8-K 2018-04-27
8-K 2018-02-21
8-K 2018-01-29

FCAP 10Q Quarterly Report

Part I - Financial Information
Part I - Item 2
Part I - Item 3
Part I - Item 4
Part II
Item 1.Legal Proceedings
Item 1A.Risk Factors
Part II
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Part II
Item 6.Exhibits
EX-31.1 exh_311.htm
EX-31.2 exh_312.htm
EX-32.1 exh_321.htm
EX-32.2 exh_322.htm

First Capital Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
83566850133416702012201420172020
Assets, Equity
3.02.41.81.20.60.02016201720182020
Rev, G Profit, Net Income
6546278-11-302012201420172020
Ops, Inv, Fin

10-Q 1 f10q_050820p.htm FORM 10-Q

UNITED STATES

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, 2020

 

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   (I.R.S. Employer  
  incorporation or organization)   Identification Number)  
         
  220 Federal Drive NW, Corydon, Indiana 47112   1-812-738-2198  
  (Address of principal executive offices, zip code, telephone number)  
         
  Not applicable  
  (Former name, former address and former fiscal year, if changed since last report)  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exhange on which registered
Common stock, par value $0.01 per share FCAP The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all 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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X     No ____

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer   [  ]   Accelerated filer   [X]  
  Non-accelerated filer   [  ]   Smaller reporting company   [X]  
          Emerging growth company   [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____   No X

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 3,377,882 shares of common stock were outstanding as of April 24, 2020.

 

 

 

   

 

FIRST CAPITAL, INC.

 

 

INDEX

 

    Page
     
Part I Financial Information
     
  Item 1. Consolidated Financial Statements  
     
  Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited) 3
     
  Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited) 5
     
  Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited) 6
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited) 7
     
  Notes to Consolidated Financial Statements (unaudited) 8-40
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41-46
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 47-50
     
  Item 4. Controls and Procedures 50
     
Part II Other Information
     
  Item 1. Legal Proceedings 51
     
  Item 1A. Risk Factors 51-52
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 52
     
  Item 3. Defaults Upon Senior Securities 52
     
  Item 4. Mine Safety Disclosures 52
     
  Item 5. Other Information 52
     
  Item 6. Exhibits 53
     
     
     
Signatures    

 

 

-2-

 

   

 

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   March 31,  December 31,
   2020  2019
   (In thousands)
ASSETS      
Cash and due from banks  $19,470   $18,922 
Interest bearing deposits with banks   1,388    3,412 
Federal funds sold   38,864    29,026 
Total cash and cash equivalents   59,722    51,360 
           
Interest-bearing time deposits   6,490    6,490 
Securities available for sale, at fair value   253,182    254,562 
Loans, net   465,292    466,494 
Loans held for sale   3,085    4,176 
Federal Home Loan Bank and other stock, at cost   1,988    1,988 
Foreclosed real estate   -    170 
Premises and equipment   16,343    16,414 
Accrued interest receivable   2,863    3,076 
Cash value of life insurance   8,316    8,269 
Goodwill   6,472    6,472 
Core deposit intangible   782    819 
Other assets   6,640    7,206 
           
Total Assets  $831,175   $827,496 
           
LIABILITIES          
Deposits:          
Noninterest-bearing  $146,552   $146,097 
Interest-bearing   576,066    576,080 
Total deposits   722,618    722,177 
           
Accrued interest payable   219    210 
Accrued expenses and other liabilities   5,430    6,161 
Total liabilities   728,267    728,548 
           
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 7,500,000 shares; issued 3,805,533 shares (3,791,283 in 2019); outstanding 3,377,882 shares (3,363,632 in 2019)   38    38 
Additional paid-in capital   41,684    40,723 
Retained earnings-substantially restricted   66,549    65,266 
Unearned stock compensation   (1,808)   (940)
Accumulated other comprehensive income   4,723    2,142 
Less treasury stock, at cost - 427,651 shares   (8,393)   (8,393)
Total First Capital, Inc. stockholders' equity   102,793    98,836 
           
Noncontrolling interest in subsidiary   115    112 
Total equity   102,908    98,948 
           
Total Liabilities and Equity  $831,175   $827,496 

 

See accompanying notes to consolidated financial statements.      

 

-3-

 

   

 

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

   Three Months Ended
   March 31,
   2020  2019
INTEREST INCOME  (In thousands, except per share data)
Loans, including fees  $6,276   $6,057 
Securities:          
Taxable   737    984 
Tax-exempt   479    391 
Dividends   18    26 
Other interest income   164    200 
Total interest income   7,674    7,658 
INTEREST EXPENSE          
Deposits   468    456 
Total interest expense   468    456 
Net interest income   7,206    7,202 
Provision for loan losses   351    450 
Net interest income after provision for loan losses   6,855    6,752 
NONINTEREST INCOME          
Service charges on deposit accounts   506    461 
ATM and debit card fees   765    647 
Commission and fee income   113    98 
Loss on sale of securities available for sale and time deposits   -    (97)
Unrealized gain (loss) on equity securities   (394)   131 
Gain on sale of loans   359    158 
Increase in cash value of life insurance   47    48 
Other income   60    59 
Total noninterest income   1,456    1,505 
NONINTEREST EXPENSE          
Compensation and benefits   3,502    3,042 
Occupancy and equipment   439    397 
Data processing   796    838 
Professional fees   174    229 
Advertising   108    89 
Net loss on foreclosed real estate   1    195 
Other expenses   805    875 
Total noninterest expense   5,825    5,665 
Income before income taxes   2,486    2,592 
Income tax expense   389    442 
Net Income   2,097    2,150 
Less: net income attributable to the noncontrolling interest in subsidiary   3    3 
Net Income Attributable to First Capital, Inc.  $2,094   $2,147 
           
Earnings per common share attributable to First Capital, Inc.:          
Basic  $0.63   $0.64 
Diluted  $0.63   $0.64 
           
Dividends per share on common shares  $0.24   $0.23 

 

See accompanying notes to consolidated financial statements.        

 

-4-

 

   

 

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   Three Months Ended
   March 31,
   2020  2019
   (In thousands)
       
Net Income  $2,097   $2,150 
           
OTHER COMPREHENSIVE INCOME          
Unrealized gains on securities available for sale:          
Unrealized holding gains arising during the period   3,435    2,347 
Income tax expense   (854)   (584)
Net of tax amount   2,581    1,763 
           
Less: reclassification adjustment for realized losses included in net income   -    97 
Income tax benefit   -    (21)
Net of tax amount   -    76 
           
Other Comprehensive Income, net of tax   2,581    1,839 
           
Comprehensive Income   4,678    3,989 
Less: comprehensive income attributable to the noncontrolling interest in subsidiary   3    3 
           
Comprehensive Income Attributable to First Capital, Inc.  $4,675   $3,986 

 

See accompanying notes to consolidated financial statements.

 

 

 

-5-

 

   

 

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

 

            Accumulated            
      Additional     Other  Unearned         
   Common  Paid-in  Retained  Comprehensive  Stock  Treasury  Noncontrolling   
(In thousands, except share and per share data)  Stock  Capital  Earnings  Income (Loss)  Compensation  Stock  Interest  Total
                         
Balances at January 1, 2019  $38   $40,215   $58,137   $(3,477)  $(720)  $(8,349)  $112   $85,956 
                                         
Net income   -    -    2,147    -    -    -    3    2,150 
                                         
Other comprehensive income   -    -    -    1,839    -    -    -    1,839 
                                         
Cash dividends   -    -    (773)   -    -    -    -    (773)
                                         
Restricted stock grants   -    508    -    -    (508)   -    -    - 
                                         
Stock compensation expense   -    -    -    -    56    -    -    56 
                                         
Balances at March 31, 2019  $38   $40,723   $59,511   $(1,638)  $(1,172)  $(8,349)  $115   $89,228 
                                         
                                         
Balances at January 1, 2020  $38   $40,723   $65,266   $2,142   $(940)  $(8,393)  $112   $98,948 
                                         
Net income   -    -    2,094    -    -    -    3    2,097 
                                         
Other comprehensive income   -    -    -    2,581    -    -    -    2,581 
                                         
Cash dividends   -    -    (811)   -    -    -    -    (811)
                                         
Restricted stock grants   -    961    -    -    (961)   -    -    - 
                                         
Stock compensation expense   -    -    -    -    93    -    -    93 
                                         
Balances at March 31, 2020  $38   $41,684   $66,549   $4,723   $(1,808)  $(8,393)  $115   $102,908 

 

See accompanying notes to consolidated financial statements.              

 

-6-

 

   

 

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Three Months Ended
   March 31,
   2020  2019
CASH FLOWS FROM OPERATING ACTIVITIES  (In thousands)
Net income  $2,097   $2,150 
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:          
Amortization of premiums and accretion of discounts on securities, net   534    391 
Depreciation and amortization expense   305    264 
Deferred income taxes   164    (74)
Stock compensation expense   93    56 
Increase in cash value of life insurance   (47)   (48)
Loss on sale of securities and time deposits   -    97 
Provision for loan losses   351    450 
Proceeds from sales of loans   23,561    7,942 
Loans originated for sale   (22,111)   (6,312)
Gain on sale of loans   (359)   (158)
Amortization of tax credit investment   96    82 
Unrealized (gain) loss on equity securities   394    (131)
Net realized and unrealized loss on foreclosed real estate   -    136 
(Increase) decrease in accrued interest receivable   213    (7)
Increase in accrued interest payable   9    27 
Net change in other assets/liabilities   (768)   66 
Net Cash Provided By Operating Activities   4,532    4,931 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Proceeds from maturities of interest-bearing time deposits   245    490 
Proceeds from sales of interest-bearing time deposits   -    1,460 
Purchase of interest-bearing time deposits   (245)   (985)
Purchase of securities available for sale   (15,390)   (17,862)
Proceeds from maturities of securities available for sale   9,685    15,645 
Proceeds from sales of securities available for sale   -    5,437 
Principal collected on mortgage-backed obligations   9,930    5,533 
Net (increase) decrease in loans receivable   851    (15,972)
Investment in tax credit entity   (848)   (152)
Proceeds from sale of foreclosed real estate   170    8 
Purchase of premises and equipment   (198)   (214)
Net Cash Provided By (Used In) Investing Activities   4,200    (6,612)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net increase in deposits   441    16,885 
Dividends paid   (811)   (773)
Net Cash Provided By (Used In) Financing Activities   (370)   16,112 
           
Net Increase in Cash and Cash Equivalents   8,362    14,431 
Cash and cash equivalents at beginning of period   51,360    41,112 
Cash and Cash Equivalents at End of Period  $59,722   $55,543 

 

See accompanying notes to consolidated financial statements.    

 

-7-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Presentation of Interim Information

 

First Capital, Inc. (“Company”) is the financial holding company for First Harrison Bank (“Bank”), an Indiana chartered commercial bank and wholly owned subsidiary. First Harrison Investments, Inc. and First Harrison Holdings, Inc. are wholly-owned Nevada corporate subsidiaries of the Bank that jointly own First Harrison, LLC, a Nevada limited liability corporation that holds and manages an investment portfolio. First Harrison REIT, Inc. (“REIT”) is a wholly-owned subsidiary of First Harrison Holdings, Inc. that holds a portion of the Bank’s real estate mortgage loan portfolio. FHB Risk Mitigation Services, Inc. (“Captive”) is a wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance to eight other third party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace. Heritage Hill, LLC is a wholly-owned subsidiary of the Bank that holds and manages certain foreclosed real estate properties.

 

In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2020, and the results of operations for the three months ended March 31, 2020 and 2019 and the cash flows for the three months ended March 31, 2020 and 2019. 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 or any other period.

 

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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, 2019 included in the Company’s Annual Report on Form 10-K.

 

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassifications had no effect on net income or stockholders’ equity.

 

COVID-19

 

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The COVID-19 pandemic has adversely affected, and may continue to adversely affect economic activity globally, nationally and locally. COVID-19 and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. Such events also may adversely affect business and consumer confidence, generally, and the Company and its customers, and their respective suppliers, vendors and processors, may be adversely affected.

 

-8-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1 – continued)

 

Due to the COVID-19 pandemic market interest rates have declined significantly, as the Federal Open Market Committee reduced the targeted federal funds interest rate range by 150 basis points during the month of March 2020 to 0% to 0.25%. These reductions in interest rates and other effects of the COVID-19 pandemic may adversely affect the Company's financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the financial impact will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans.

 

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”. This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance goes on to explain that in consultation with the Financial Accounting Standards Board (“FASB”) staff that the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings (“TDRs”). The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020. The CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Bank has applied this guidance related to payment deferrals and other COVID-19 related loan modifications made through March 31, 2020, and additional modifications are expected in the second quarter of 2020.

 

The CARES Act also included an allocation of $349 billion for loans to be issued by financial institutions through the Small Business Administration (“SBA”). This program is known as the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, if the proceeds are used for eligible payroll costs and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven in whole or in part. Payments are deferred for the first six months of the loan and the loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. The SBA began accepting submissions for these PPP loans on April 3, 2020 and the initial allocation of funds was exhausted on April 16, 2020. An additional $310 billion was allocated to the PPP on April 27, 2020. Through May 6, 2020, the Bank had received SBA authorizations for PPP loans totaling approximately $44.6 million. Participation in the PPP will likely have a positive impact on the Company’s financial position and results of operations as this fee income is recognized over the term of the PPP loans.

 

-9-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.Investment Securities

 

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at March 31, 2020 and December 31, 2019 are summarized as follows:

 

      Gross  Gross   
   Amortized  Unrealized  Unrealized  Fair
(In thousands)  Cost  Gains  Losses  Value
             
March 31, 2020                    
Securities available for sale:                    
Agency mortgage-backed securities  $68,746   $1,323   $-   $70,069 
Agency CMO   41,377    370    138    41,609 
Other debt securities:                    
Agency notes and bonds   59,139    1,430    -    60,569 
Municipal obligations   77,797    3,220    82    80,935 
                     
Total securities available for sale  $247,059   $6,343   $220   $253,182 
                     
December 31, 2019                    
Securities available for sale:                    
Agency mortgage-backed securities  $69,984   $90   $576   $69,498 
Agency CMO   43,067    238    221    43,084 
Other debt securities:                    
Agency notes and bonds   64,162    473    79    64,556 
Municipal obligations   74,606    2,843    25    77,424 
                     
Total securities available for sale  $251,819   $3,644   $901   $254,562 

 

Agency notes and bonds, agency mortgage-backed securities and agency collateralized mortgage obligations (“CMO”) include securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank (“FHLB”), which are government-sponsored enterprises.

 

 

-10-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2 – continued)

 

The amortized cost and fair value of debt securities as of March 31, 2020, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and CMO may differ from contractual maturities because the mortgages underlying the obligations may be prepaid without penalty.

 

   Securities Available for Sale
   Amortized  Fair
   Cost  Value
(In thousands)          
           
Due in one year or less  $18,895   $18,949 
Due after one year through five years   48,810    50,327 
Due after five years through ten years   27,915    29,154 
Due after ten years   41,316    43,074 
    136,936    141,504 
Mortgage-backed securities and CMO   110,123    111,678 
           
   $247,059   $253,182 

 

Information pertaining to investment securities with gross unrealized losses at March 31, 2020, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

 

   Number of     Gross
   Investment  Fair  Unrealized
   Positions  Value  Losses
(Dollars in thousands)               
                
Continuous loss position less than twelve months:               
Agency CMO   15   $16,012   $137 
Muncipal obligations   7    4,629    82 
                
Total less than twelve months   22    20,641    219 
                
Continuous loss position more than twelve months:               
Agency CMO   2    322    1 
                
Total more than twelve months   2    322    1 
                
Total securities available for sale   24   $20,963   $220 

 

-11-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2 – continued)

 

Information pertaining to investment securities with gross unrealized losses at December 31, 2019, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

 

   Number of     Gross
   Investment  Fair  Unrealized
   Positions  Value  Losses
(Dollars in thousands)               
                
Continuous loss position less than twelve months:               
Agency mortgage-backed securities   5   $723   $2 
Agency CMO   13    14,749    157 
Agency notes and bonds   2    5,551    17 
Muncipal obligations   4    3,241    25 
                
Total less than twelve months   24    24,264    201 
                
Continuous loss position more than twelve months:               
Agency mortgage-backed securities   50    49,033    574 
Agency CMO   15    7,113    64 
Agency notes and bonds   10    37,706    62 
                
Total more than twelve months   75    93,852    700 
                
Total securities available for sale   99   $118,116   $901 

 

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair value.

 

At March 31, 2020, the U.S. government agency debt securities, including agency notes and bonds, mortgage-backed securities and CMO, and municipal obligations in a loss position had depreciated approximately 1.0% from the amortized cost basis. All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by first mortgage loans and municipal project revenues. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

 

While management does not anticipate any credit-related impairment losses at March 31, 2020, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future.

 

-12-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(2 – continued)

 

During the three months ended March 31, 2019, the Company realized gross losses of $86,000 on sales of available for sale securities and gross losses of $11,000 on sales of time deposits. During the three months ended March 31, 2020, the Company sold no securities or time deposits.

 

Certain available for sale debt securities were pledged to secure public fund deposits at March 31, 2020 and December 31, 2019.

 

Equity Securities

 

In September 2018, the Company acquired 90,000 shares of common stock in another bank holding company, representing approximately 5% of the outstanding common stock of the entity, for a total investment of $1.9 million. During the three months ended March 31, 2020, the Company recognized an unrealized loss of $394,000 on this equity investment. During the three months ended March 31, 2019, the Company recognized an unrealized gain of $131,000 on this equity investment. At March 31, 2020 and December 31, 2019, the equity investment had a fair value of $1.4 million and $1.7 million, respectively, and is included in other assets on the consolidated balance sheet.

 

3.Loans and Allowance for Loan Losses

 

The Company’s loan and allowance for loan loss policies are as follows:

 

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. The Company originates real estate mortgage, commercial business and consumer loans. A substantial portion of the loan portfolio is represented by mortgage loans to customers in the Louisville, Kentucky metropolitan statistical area (MSA). The ability of the Company’s customers to honor their loan agreements is largely dependent upon the real estate and general economic conditions in this area.

 

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

 

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote.

 

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

 

-13-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below. Specific reserves are not considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined.

 

Consumer loans not secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

 

The allowance for loan losses reflects management’s judgment of probable loan losses inherent in the loan portfolio at the balance sheet date. Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated for impairment or loans otherwise classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the underlying discounted collateral value (or present value of estimated future cash flows) of the impaired loan is lower than the carrying value of that loan.

 

-14-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The general component covers loans not considered to be impaired. Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior five years. The Company’s historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio segment. Management considers changes and trends in the following qualitative loss factors: underwriting standards, economic conditions, changes and trends in past due and classified loans, collateral valuations, loan concentrations and other internal and external factors.

 

Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are not individually evaluated for impairment. The loss factor multiples for classified loans are based on management’s assessment of historical trends regarding losses experienced on classified loans in prior periods. See below for additional discussion of the qualitative factors utilized in management’s allowance for loan loss methodology at March 31, 2020 and December 31, 2019.

 

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors. Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

 

Management utilizes the following portfolio segments in its analysis of the allowance for loan losses: residential real estate, land, construction, commercial real estate, commercial business, home equity and second mortgage, and other consumer loans. Additional discussion of the portfolio segments and the risks associated with each segment can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

-15-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors. New appraisals are generally obtained for all significant properties when a loan is identified as impaired, and a property is considered significant if the value of the property is estimated to exceed $200,000. Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it is not deemed necessary to obtain a new appraisal, management bases its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

 

At March 31, 2020, the Company held no foreclosed real estate. At December 31, 2019, the balance of foreclosed real estate includes $170,000 of residential real estate properties where physical possession had been obtained. At March 31, 2020 and December 31, 2019, the recorded investment in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $289,000 and $319,000, respectively.

 

Loans at March 31, 2020 and December 31, 2019 consisted of the following:

 

   March 31,  December 31,
(In thousands)  2020  2019
       
Real estate mortgage loans:          
Residential  $128,039   $131,959 
Land   18,861    19,185 
Residential construction   42,760    35,554 
Commercial real estate   129,180    121,563 
Commercial real estate construction   12,620    20,086 
Commercial business loans   44,811    45,307 
Consumer loans:          
Home equity and second mortgage loans   54,655    54,677 
Automobile loans   45,304    46,443 
Loans secured by savings accounts   1,318    1,372 
Unsecured loans   3,434    3,653 
Other consumer loans   13,134    13,700 
Gross loans   494,116    493,499 
Less undisbursed portion of loans in process   (24,638)   (23,081)
           
Principal loan balance   469,478    470,418 
           
Deferred loan origination fees, net   1,121    1,137 
Allowance for loan losses   (5,307)   (5,061)
           
Loans, net  $465,292   $466,494 

 

-16-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table provides the components of the Company’s recorded investment in loans at March 31, 2020:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Recorded Investment in Loans:                                        
Principal loan balance  $128,039   $18,861   $30,742   $129,180   $44,811   $54,655   $63,190   $469,478 
                                         
Accrued interest receivable   453    98    70    344    117    218    226    1,526 
                                         
Net deferred loan origination fees and costs   116    14    (6)   (68)   -    1,065    -    1,121 
                                         
Recorded investment in loans  $128,608   $18,973   $30,806   $129,456   $44,928   $55,938   $63,416   $472,125 
                                         
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $1,840   $115   $-   $447   $247   $56   $42   $2,747 
Collectively evaluated for impairment   126,487    18,858    30,806    128,972    44,681    55,882    63,374    469,060 
Acquired with deteriorated credit quality   281    -    -    37    -    -    -    318 
                                         
Ending balance  $128,608   $18,973   $30,806   $129,456   $44,928   $55,938   $63,416   $472,125 

 

 

-17-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table provides the components of the Company’s recorded investment in loans at December 31, 2019:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Recorded Investment in Loans:                                        
Principal loan balance  $131,959   $19,185   $32,559   $121,563   $45,307   $54,677   $65,168   $470,418 
                                         
Accrued interest receivable   462    114    86    312    142    244    272    1,632 
                                         
Net deferred loan origination fees and costs   118    15    (1)   (62)   -    1,067    -    1,137 
                                         
Recorded investment in loans  $132,539   $19,314   $32,644   $121,813   $45,449   $55,988   $65,440   $473,187 
                                         
                                         
Recorded Investment in Loans as Evaluated for Impairment:                                        
Individually evaluated for impairment  $1,926   $115   $-   $353   $249   $56   $48   $2,747 
Collectively evaluated for impairment   130,328    19,199    32,644    121,421    45,200    55,932    65,392    470,116 
Acquired with deteriorated credit quality   285    -    -    39    -    -    -    324 
                                         
Ending balance  $132,539   $19,314   $32,644   $121,813   $45,449   $55,988   $65,440   $473,187 

 

 

-18-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

An analysis of the allowance for loan losses as of March 31, 2020 is as follows:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Ending allowance balance attributable to loans:                  
                         
Individually evaluated for impairment  $15   $-   $-   $-   $-   $-   $-   $15 
Collectively evaluated for impairment   891    163    353    1,735    620    550    957    5,269 
Acquired with deteriorated credit quality   23    -    -    -    -    -    -    23 
                                         
Ending balance  $929   $163   $353   $1,735   $620   $550   $957   $5,307 

 

An analysis of the allowance for loan losses as of December 31, 2019 is as follows:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Ending allowance balance attributable to loans:                  
                         
Individually evaluated for impairment  $16   $-   $-   $-   $-   $-   $-   $16 
Collectively evaluated for impairment   839    163    350    1,623    595    515    948    5,033 
Acquired with deteriorated credit quality   12    -    -    -    -    -    -    12 
                                         
Ending balance  $867   $163   $350   $1,623   $595   $515   $948   $5,061 

 

 

-19-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2020 is as follows:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Allowance for loan losses:                                        
                                         
Beginning balance  $867   $163   $350   $1,623   $595   $515   $948   $5,061 
Provisions for loan losses   62    -    3    112    25    33    116    351 
Charge-offs   -    -    -    -    -    -    (159)   (159)
Recoveries   -    -    -    -    -    2    52    54 
                                         
Ending balance  $929   $163   $353   $1,735   $620   $550   $957   $5,307 

 

An analysis of the changes in the allowance for loan losses for the three months ended March 31, 2019 is as follows:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
Allowance for loan losses:                                        
                                         
Beginning balance  $693   $162   $224   $1,401   $459   $443   $683   $4,065 
Provisions for loan losses   71    2    67    (10)   82    5    233    450 
Charge-offs   (39)   -    -    -    -    -    (181)   (220)
Recoveries   2    -    -    -    -    2    40    44 
                                         
Ending balance  $727   $164   $291   $1,391   $541   $450   $775   $4,339 

 

 

-20-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

At March 31, 2020 and December 31, 2019, the estimated allowance for loan losses related to qualitative factor adjustments to various portfolio segments totaled approximately $4.1 million and $3.8 million, respectively. These changes were made to reflect management’s estimates of inherent losses in these portfolio segments at March 31, 2020 and December 31, 2019. The increases to qualitative factors at March 31, 2020 were largely related to economic uncertainties surrounding COVID-19.

 

Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are not individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans. The effect of the adjustments for classified loans was to increase the estimated allowance for loan losses by $407,000 and $386,000 at March 31, 2020 and December 31, 2019, respectively. These factors were not adjusted during the period from December 31, 2019 to March 31, 2020.

 

 

 

 

-21-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s impaired loans as of March 31, 2020 and for the three months ended March 31, 2020 and 2019. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the three month periods ended March 31, 2020 and 2019:

 

   At March 31, 2020  Three Months Ended March 31, 2020  Three Months Ended March 31, 2019
      Unpaid     Average  Interest  Average  Interest
   Recorded  Principal  Related  Recorded  Income  Recorded  Income
   Investment  Balance  Allowance  Investment  Recognized  Investment  Recognized
   (In thousands)
Loans with no related allowance recorded:                                   
Residential  $1,662   $1,927   $-   $1,700   $6   $2,181   $3 
Land   115    119    -    115    -    171    - 
Construction   -    -    -    -    -    523    - 
Commercial real estate   447    446    -    400    9    253    2 
Commercial business   247    255    -    248    2    398    3 
Home equity/2nd mortgage   56    55    -    56    1    30    - 
Other consumer   42    44    -    45    -    -    - 
                                    
    2,569    2,846    -    2,564    18    3,556    8 
                                    
Loans with an allowance recorded:                                   
Residential   178    198    15    184    -    76    - 
Land   -    -    -    -    -    -    - 
Construction   -    -    -    -    -    -    - 
Commercial real estate   -    -    -    -    -    103    - 
Commercial business   -    -    -    -    -    119    - 
Home equity/2nd mortgage   -    -    -    -    -    14    - 
Other consumer   -    -    -    -    -    -    - 
                                    
    178    198    15    184    -    312    - 
                                    
Total:                                   
Residential   1,840    2,125    15    1,884    6    2,257    3 
Land   115    119    -    115    -    171    - 
Construction   -    -    -    -    -    523    - 
Commercial real estate   447    446    -    400    9    356    2 
Commercial business   247    255    -    248    2    517    3 
Home equity/2nd mortgage   56    55    -    56    1    44    - 
Other consumer   42    44    -    45    -    -    - 
                                    
   $2,747   $3,044   $15   $2,748   $18   $3,868   $8 

 

 

-22-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s impaired loans as of December 31, 2019:

 

      Unpaid   
   Recorded  Principal  Related
   Investment  Balance  Allowance
   (In thousands)
Loans with no related allowance recorded:               
Residential  $1,737   $1,986   $- 
Land   115    117    - 
Construction   -    -    - 
Commercial real estate   353    352    - 
Commercial business   249    257    - 
Home equity/2nd mortgage   56    56    - 
Other consumer   48    50    - 
                
    2,558    2,818    - 
                
Loans with an allowance recorded:               
Residential   189    211    16 
Land   -    -    - 
Construction   -    -    - 
Commercial real estate   -    -    - 
Commercial business   -    -    - 
Home equity/2nd mortgage   -    -    - 
Other consumer   -    -    - 
                
    189    211    16 
                
Total:               
Residential   1,926    2,197    16 
Land   115    117    - 
Construction   -    -    - 
Commercial real estate   353    352    - 
Commercial business   249    257    - 
Home equity/2nd mortgage   56    56    - 
Other consumer   48    50    - 
                
   $2,747   $3,029   $16 

 

 

-23-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at March 31, 2020 and December 31, 2019:

 

   March 31, 2020  December 31, 2019
      Loans 90+ Days  Total     Loans 90+ Days  Total
   Nonaccrual  Past Due  Nonperforming  Nonaccrual  Past Due  Nonperforming
   Loans  Still Accruing  Loans  Loans  Still Accruing  Loans
   (In thousands)
                   
Residential  $1,460   $55   $1,515   $1,544   $13   $1,557 
Land   115    -    115    115    -    115 
Construction   -    -    -    -    -    - 
Commercial real estate   -    -    -    -    -    - 
Commercial business   61    -    61    58    -    58 
Home equity/2nd mortgage   -    -    -    -    -    - 
Other consumer   41    1    42    48    -    48 
                               
Total  $1,677   $56   $1,733   $1,765   $13   $1,778 

 

The following table presents the aging of the recorded investment in loans at March 31, 2020:

 

                  Purchased   
   30-59 Days  60-89 Days  90 Days or More  Total     Credit  Total
   Past Due  Past Due  Past Due  Past Due  Current  Impaired Loans  Loans
   (In thousands)
                      
Residential  $2,050   $401   $1,035   $3,486   $124,841   $281   $128,608 
Land   130    6    86    222    18,751    -    18,973 
Construction   51    -    -    51    30,755    -    30,806 
Commercial real estate   672    249    -    921    128,498    37    129,456 
Commercial business   112    218    61    391    44,537    -    44,928 
Home equity/2nd mortgage   355    204    -    559    55,379    -    55,938 
Other consumer   409    53    1    463    62,953    -    63,416 
                                    
Total  $3,779   $1,131   $1,183   $6,093   $465,714   $318   $472,125 

 

 

-24-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table presents the aging of the recorded investment in loans at December 31, 2019:

 

                  Purchased   
   30-59 Days  60-89 Days  90 Days or More  Total     Credit  Total
   Past Due  Past Due  Past Due  Past Due  Current  Impaired Loans  Loans
   (In thousands)
                      
Residential  $2,572   $824   $1,010   $4,406   $127,848   $285   $132,539 
Land   185    101    80    366    18,948    -    19,314 
Construction   -    -    -    -    32,644    -    32,644 
Commercial real estate   -    146    -    146    121,628    39    121,813 
Commercial business   61    -    58    119    45,330    -    45,449 
Home equity/2nd mortgage   395    256    -    651    55,337    -    55,988 
Other consumer   504    66    -    570    64,870    -    65,440 
                                    
Total  $3,717   $1,393   $1,148   $6,258   $466,605   $324   $473,187 

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

 

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the institution’s books as an asset is not warranted.

 

Loans not meeting the criteria above that are analyzed individually as part of the described process are considered to be pass rated loans.

 

-25-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table presents the recorded investment in loans by risk category as of the date indicated:

 

   Residential        Commercial  Commercial  Home Equity &  Other   
   Real Estate  Land  Construction  Real Estate  Business  2nd Mtg  Consumer  Total
   (In thousands)
March 31, 2020                                        
Pass  $125,357   $18,460   $30,806   $126,799   $44,032   $55,511   $63,313   $464,278 
Special Mention   386    321    -    784    464    -    62    2,017 
Substandard   1,443    77    -    1,873    371    427    -    4,191 
Doubtful   1,422    115    -    -    61    -    41    1,639 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $128,608   $18,973   $30,806   $129,456   $44,928   $55,938   $63,416   $472,125 
                                         
December 31, 2019                                        
Pass  $129,613   $18,805   $32,394   $119,469   $44,879   $55,569   $65,320   $466,049 
Special Mention   46    327    250    1,136    378    -    72    2,209 
Substandard   1,336    67    -    1,208    134    419    -    3,164 
Doubtful   1,544    115    -    -    58    -    48    1,765 
Loss   -    -    -    -    -    -    -    - 
                                         
Total  $132,539   $19,314   $32,644   $121,813   $45,449   $55,988   $65,440   $473,187 

 

 

-26-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The following table summarizes the Company’s TDRs by accrual status as of March 31, 2020 and December 31, 2019:

 

   March 31, 2020  December 31, 2019
            Related Allowance           Related Allowance
   Accruing  Nonaccrual  Total  for Loan Losses  Accruing  Nonaccrual  Total  for Loan Losses
   (In thousands)
Troubled debt restructurings:                                        
Residential real estate  $381   $65   $446   $-   $367   $66   $433   $- 
Commercial real estate   643    -    643    -    553    -    553    - 
Commercial business   186    -    186    -    191    -    191    - 
Home equity and second mortgage   55    -    55    -    55    -    55    - 
                                         
Total  $1,265   $65   $1,330   $-   $1,166   $66   $1,232   $- 

 

At March 31, 2020 and December 31, 2019, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

 

The Company restructured one commercial real estate loan and one residential mortgage loan during the three months ended March 31, 2020, with a pre-modification and post-modification outstanding balance of $265,000. The terms of the modifications included the deferral of contractual principal payments and a maturity extension to lower the payment. There were no TDRs that were restructured during the three months ended March 31, 2019.

 

There were no principal charge-offs recorded as a result of TDRs and there was no specific allowance for loan losses related to TDRs modified during the three months ended March 31, 2020 or 2019.

 

-27-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

There were no TDRs modified within the previous 12 months for which there was a subsequent payment default (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the three months ended March 31, 2020 and 2019. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan.

 

As discussed in Note 1, the federal banking agencies issued guidance in March 2020 that short-term modifications (e.g., six months) made to a borrower affected by the COVID-19 pandemic does not need to be identified as a TDR if the loan was current at the time of the modification. The CARES Act also addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not TDRs. As of May 6, 2020, the Bank had approved payment extensions using this guidance on approximately 11.7% of balances in the loan portfolio, primarily related to commercial real estate lending relationships. These payment extensions are generally for periods of one to three months, but may extend for up to six months.

 

Purchased Credit Impaired (PCI) Loans

 

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans that have evidence of credit deterioration since origination for which it is deemed probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) 310-30. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which is recognized as future interest income.

 

The following table presents the carrying amount of PCI loans accounted for under ASC 310-30 at March 31, 2020 and December 31, 2019:

 

   March 31,  December 31,
(In thousands)  2020  2019
       
Residential real estate  $281   $285 
Commercial real estate   37    39 
Carrying amount   318    324 
Allowance for loan losses   23    12 
Carrying amount, net of allowance  $295   $312 

 

 

-28-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(3 – continued)

 

The outstanding balance of PCI loans accounted for under ASC 310-30, including contractual principal, interest, fees and penalties was $452,000 and $466,000 at March 31, 2020 and December 31, 2019, respectively.

 

There was a $23,000 allowance for loan losses related to PCI loans at March 31, 2020 and a $12,000 allowance for loan losses related to PCI loans at December 31, 2019. There was a $11,000 provision for loan losses related to PCI loans for the three-month period ended March 31, 2020. There were no net provisions for loan losses related to PCI loans for the three-month period ended March 31, 2019.

 

Accretable yield, or income expected to be collected, is as follows for the three month periods ended March 31, 2020 and 2019:

 

   2020  2019
       
Balance at beginning of period  $403   $423 
New loans purchased   -    - 
Accretion to income   (11)   (12)
Disposals and other adjustments   -    - 
Reclassification from nonaccretable difference   (17)   (2)
           
Balance at end of period  $375   $409 

 

 

4.Qualified Affordable Housing Project Investment

 

On January 19, 2018, the Bank entered into an agreement to invest in qualified affordable housing projects through a limited liability company. At March 31, 2020 and December 31, 2019, the balance of the Bank’s investment was $3.1 million and $3.2 million, respectively, and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the qualified affordable housing project investment at March 31, 2020 and December 31, 2019 was $1.1 million and $1.9 million, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Bank expects to fulfill the commitment as capital calls are made through 2029.

 

The investment is accounted for using the proportional amortization method. During the three month periods ended March 31, 2020 and 2019, the Bank recognized amortization expense of $96,000 and $82,000, respectively, which was included in income tax expense on the consolidated statements of income. Additionally, during the three month periods ended March 31, 2020 and 2019, the Bank recognized tax credits and other tax benefits from its qualified affordable housing project investment of $111,000 and $125,000, respectively.

 

-29-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

5.Supplemental Disclosure for Earnings Per Share

 

   Three Months Ended
   March 31,
       
   2020  2019
(Dollars in thousands, except per share data)      
Basic          
Earnings:          
Net income attributable to First Capital, Inc.  $2,094   $2,147 
           
Shares:          
Weighted average common shares outstanding   3,336,459    3,329,844 
           
Net income attributable to First Capital, Inc. per common share, basic  $0.63   $0.64 
           
Diluted          
Earnings:          
Net income attributable to First Capital, Inc.  $2,094   $2,147 
           
Shares:          
Weighted average common shares outstanding   3,336,459    3,329,844 
Add: Dilutive effect of restricted stock   13,257    10,100 
           
Weighted average common shares outstanding, as adjusted   3,349,716    3,339,944 
           
Net income attributable to First Capital, Inc. per common share, diluted  $0.63   $0.64 

 

Nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding. No shares were excluded from the calculations of diluted net income per share because their effect would be anti-dilutive for the three-month periods ended March 31, 2020 and 2019.

 

6.Stock-Based Compensation Plan

 

On May 20, 2009, the Company adopted the 2009 Equity Incentive Plan (the “2009 Plan”) which terminated as of May 20, 2019. The 2009 Plan provided for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the 2009 Plan could not exceed 223,000 shares and 176,150 shares were still available for issuance under the 2009 Plan at its termination.

 

-30-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(6 – continued)

 

On May 22, 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the 2019 Plan may not exceed 176,150 shares. If an award under the 2009 Plan is canceled, terminates, expires, is forfeited or lapses for any reason, any issued shares subject to the award shall not be available for issuance pursuant to awards subsequently granted under the 2019 Plan. Further, no additional participants, as that term is defined in the 2009 Plan, are eligible for grants of awards under the 2009 Plan.

 

At March 31, 2020, 161,900 shares of the Company’s common stock were available for issuance under the 2019 Plan. The Company may grant both non-statutory and statutory stock options which may not have a term exceeding ten years. In the case of incentive stock options, the aggregate fair value of the stock (determined at the time the incentive stock option is granted) for which any optionee may be granted incentive options which are first exercisable during any calendar year shall not exceed $100,000. Option prices may not be less than the fair market value of the underlying stock at the date of the grant. An award of a performance share is a grant of a right to receive shares of the Company’s common stock which is contingent upon the achievement of specific performance criteria or other objectives set at the grant date. Stock appreciation rights are equity or cash settled share-based compensation arrangements whereby the number of shares that will ultimately be issued or the cash payment is based upon the appreciation of the Company’s common stock. Awards granted under the 2019 Plan may be granted either alone, in addition to, or in tandem with, any other award granted under the 2019 Plan. The terms of the 2019 Plan also include provisions whereby all unearned options and restricted shares become immediately exercisable and fully vested upon a change in control.

 

The fair market value of stock options granted is estimated at the date of grant using an option pricing model. Expected volatilities are based on historical volatility of the Company's stock. The expected term of options granted represents the period of time that options are expected to be outstanding and is based on historical trends. The risk free rate for the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. As of March 31, 2020, no stock options had been granted under the Plans.

 

On February 18, 2020, the Company granted 14,250 restricted stock shares under the 2019 Plan to directors, officers and key employees at a grant-date price of $67.43 per share for a total of $961,000. The restricted stock vests ratably from the grant date through July 1, 2025, with 20% of the shares vesting each year on July 1 beginning July 1, 2021. On February 19, 2019, the Company granted 9,750 restricted stock shares under the 2009 Plan to directors, officers and key employees at a grant-date price of $52.09 per share for a total of $508,000. The restricted stock vests ratably from the grant date through July 1, 2024, with 20% of the shares vesting each year on July 1 beginning July 1, 2020. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The Company accounts for any forfeitures when they occur, and any previously recognized compensation for an award is reversed in the period the award is forfeited. Compensation expense related to restricted stock recognized for the three-month periods ended March 31, 2020 and 2019 amounted to $93,000 and $56,000, respectively. The total income tax benefit related to stock-based compensation was $28,000 and $14,000 for the three-month periods ended March 31, 2020 and 2019, respectively.

 

-31-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(6 – continued)

 

A summary of the Company’s nonvested restricted shares under the Plan as of March 31, 2020 and changes during the three-month period then ended is presented below.

 

     Weighted
   Number  Average
   of  Grant Date
   Shares  Fair Value
       
Nonvested at January 1, 2020   27,750   $41.08 
Granted   14,250    67.43 
Vested   750    40.59 
Forfeited   -    - 
           
Nonvested at March 31, 2020   41,250   $50.19 

 

There were 750 restricted shares that vested during the three-month period ended March 31, 2020 upon the retirement of a director. The total fair value of restricted shares that vested during the three-month period ended March 31, 2020 was $54,000. At March 31, 2020, there was $1.8 million of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 4.0 years.

 

7.Supplemental Disclosures of Cash Flow Information

 

   Three Months Ended
  March 31,
   2020  2019
    (In thousands) 
Cash payments for:          
Interest  $459   $428 
Taxes (net of refunds received)   0    0 

 

8.Fair Value Measurements

 

FASB ASC Topic 820, Fair Value Measurements, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are described as follows:

 

  Level 1:   Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

 

-32-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(8 – continued)

 

  Level 2:   Inputs to the valuation methodology include quoted market prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in markets that are not active; or inputs that are derived principally from or can be corroborated by observable market data by correlation or other means.
       
  Level 3:   Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth on the following page. These valuation methodologies were applied to all of the Company’s financial and nonfinancial assets carried at fair value or the lower of cost or fair value. The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2020 and December 31, 2019. The Company had no liabilities measured at fair value as of March 31, 2020 or December 31, 2019.

 

 

 

 

 

 

-33-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(8 – continued)

 

   Carrying Value
(In thousands)  Level 1  Level 2  Level 3  Total
             
March 31, 2020                    
Assets Measured on a Recurring Basis                    
Securities available for sale:                    
Agency mortgage-backed securities  $-   $70,069   $-   $70,069 
Agency CMO   -    41,609    -    41,609 
Agency notes and bonds   -    60,569    -    60,569 
Municipal obligations   -    80,935    -    80,935 
Total securities available for sale  $-   $253,182   $-   $253,182 
                     
Equity securities  $1,352   $-   $-    1,352 
                     
Assets Measured on a Nonrecurring Basis                    
Impaired loans:                    
Residential real estate  $-   $-   $1,825   $1,825 
Land   -    -    115    115 
Commercial real estate   -    -    447    447 
Commercial business   -    -    247    247 
Home equity and second mortgage   -    -    56    56 
Other consumer   -    -    42    42 
Total impaired loans  $-   $-   $2,732   $2,732 
                     
Loans held for sale  $-   $3,085   $-   $3,085 
                     
December 31, 2019                    
Assets Measured on a Recurring Basis                    
Securities available for sale:                    
Agency mortgage-backed securities  $-   $69,498   $-   $69,498 
Agency CMO   -    43,084    -    43,084 
Agency notes and bonds   -    64,556    -    64,556 
Municipal obligations   -    77,424    -    77,424 
Total securities available for sale  $-   $254,562   $-   $254,562 
                     
Equity securities  $1,746   $-   $-    1,746 
                     
Assets Measured on a Nonrecurring Basis                    
Impaired loans:                    
Residential real estate  $-   $-   $1,910   $1,910 
Land   -    -    115    115 
Commercial real estate   -    -    353    353 
Commercial business   -    -    249    249 
Home equity and second mortgage   -    -    56    56 
Other consumer   -    -    48    48 
Total impaired loans  $-   $-   $2,731   $2,731 
                     
Loans held for sale  $-   $4,176   $-   $4,176 
                     
Foreclosed real estate:                    
Residential real estate  $-   $-   $170   $170 
Total foreclosed real estate  $-   $-   $170   $170 

 

 

-34-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(8 – continued)

 

Fair value is based upon quoted market prices, where available. If quoted market prices are not available, fair value is based on internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

Securities Available for Sale and Equity Securities. Securities classified as available for sale and equity securities are reported at fair value on a recurring basis.  These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. If quoted market prices are not available, the Company obtains fair value measurements from an independent pricing service.  These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independent third party pricing service are not available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level 3 of the fair value hierarchy. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect. Changes in fair value of equity securities are recorded in noninterest income on the consolidated statements of income.

 

Impaired Loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of impaired loans is classified as Level 3 in the fair value hierarchy.

 

Impaired loans are carried at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of collateral less estimated costs to sell if the loan is collateral dependent. At March 31, 2020 and December 31, 2019, all impaired loans were considered to be collateral dependent for the purpose of determining fair value. Collateral may be real estate and/or business assets, including equipment, inventory and/or accounts receivable. The fair value of the collateral is generally determined based on real estate appraisals or other independent evaluations by qualified professionals, adjusted for estimated costs to sell the property, costs to complete or repair the property and other factors to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral.

 

-35-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(8 – continued)

 

At March 31, 2020, the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral and estimated costs to sell the collateral ranging from 40% to 47%, with a weighted average discount of 45%. At December 31, 2019, the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral and estimated costs to sell the collateral ranging from 40% to 66%, with a weighted average discount of 47%. The Company recognized a reduction in provisions for loan losses for impaired loans for the three months ended March 31, 2020 of $1,000 and provisions for loan losses for impaired loans for the three months ended March 31, 2019 of $20,000.

 

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is based on specific prices of underlying contracts for sales to investors.  These measurements are classified as Level 2.

 

Foreclosed Real Estate. Foreclosed real estate is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of foreclosed real estate is classified as Level 3 in the fair value hierarchy.

 

Foreclosed real estate is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the collateral. At March 31, 2020, the Company had no foreclosed real estate. At December 31, 2019, the discount from appraised value was 38%. There were no charges to write down foreclosed real estate recognized in income for the three months ended March 31, 2020. The Company recognized losses of $137,000 to write down foreclosed real estate for the three months ended March 31, 2019.

 

There have been no changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the three month periods ended March 31, 2020 and 2019. There were no transfers into or out of the Company’s Level 3 financial assets for the three month periods ended March 31, 2020 and 2019.

 

-36-

 

   

 

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(8 – continued)

 

GAAP requires disclosure of the fair value of financial assets and financial liabilities, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The estimated fair values of the Company's financial instruments are as follows:

 

   Carrying  Fair  Fair Value Measurements Using
(In thousands)  Value  Value  Level 1  Level 2  Level 3
                
March 31, 2020                         
Financial assets:                         
Cash and cash equivalents  $59,722   $59,722   $59,722   $-   $- 
Interest-bearing time deposits   6,490    6,835    -    6,835    - 
Securities available for sale   253,182    253,182    -    253,182    - 
Loans held for sale   3,085    3,142    -    3,142    - 
Loans, net   465,292    476,293    -    -    476,293 
FHLB and other restricted stock   1,988     N/A     N/A     N/A     N/A 
Accrued interest receivable   2,863    2,863    -    2,863    - 
Equity securities (included in other assets)   1,352&