First Capital, Inc. reported net income of $1.8 million or $0.53 per diluted share for the quarter ended June 30, 2016

OREANDA-NEWS. First Capital, Inc. (the “Company”) (NASDAQ:FCAP), the holding company for First Harrison Bank (the “Bank”), today reported net income of $1.8 million or $0.53 per diluted share for the quarter ended June 30, 2016, compared to $1.2 million or $0.45 per diluted share for the same period in 2015.  The increase in net income is primarily due to increases in net interest income after provision for loan losses and noninterest income partially offset by an increase in noninterest expenses.

As previously announced, on December 4, 2015, the Company completed its acquisition of Peoples Bancorp, Inc. of Bullitt County and its wholly-owned bank subsidiary Peoples Bank of Bullitt County (collectively, “Peoples”), headquartered in Shepherdsville, Kentucky.  As part of the acquisition, the Company acquired total assets with a fair value of $240 million, assumed liabilities with a fair value of $211 million and issued 580,017 shares of Company common stock.

Net interest income after provision for loan losses increased $1.4 million for the quarter ended June 30, 2016 as compared to the quarter ended June 30, 2015. Interest income increased $1.7 million when comparing the two periods due to an increase in the average balance of interest-earning assets from $446.5 million for the second quarter of 2015 to $690.9 million for the second quarter of 2016.  This increase was partially offset by a decrease in the average tax-equivalent yield on interest-earning assets from 4.22% for the second quarter 2015 to 3.74% for the second quarter 2016.  Both the increase in the average balance of interest-earning assets and the decrease in the average tax-equivalent yield for the second quarter of 2016 are primarily attributable to the Peoples acquisition.  Through the acquisition of Peoples, the Company acquired loans, investment securities, interest-bearing deposits with banks and federal funds sold with a fair value of approximately $56 million, $132 million, $5 million and $28 million, respectively.  The high concentration of investment securities, interest-bearing deposits with banks and federal funds sold, which generally provide a lower yield than loans, led to a decrease in the overall tax-equivalent yield on interest-earning assets for the second quarter 2016.  Interest expense increased $217,000 when comparing the periods as the average cost and average balance of interest-bearing liabilities increased from 0.28% to 0.34% and from $348.4 million to $536.3 million, respectively.  These changes were also primarily attributable to the Peoples acquisition, with the Company assuming deposit liabilities with a fair value of approximately $209 million.  As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased from 3.94% for the quarter ended June 30, 2015 to 3.40% for the same period in 2016. 

The provision for loan losses was $150,000 for the quarter ended June 30, 2016, compared to $50,000 for the same period in 2015, based on management’s analysis of the allowance for loan losses.  The Bank recognized net charge-offs of $280,000 for the quarter ended June 30, 2016 compared to $85,000 for the same period in 2015. 

Noninterest income increased $401,000 for the quarter ended June 30, 2016 as compared to the same period in 2015 primarily due to increases in gains on the sale of securities, service charges on deposit accounts and gains on the sale of loans.  Service charges on deposit accounts increased $142,000 when comparing the two periods primarily due to fees earned on the acquired Peoples accounts.

Noninterest expenses increased $1.1 million for the quarter ended June 30, 2016 as compared to the same period in 2015, due primarily to the increased expenses associated with operating the five offices acquired from Peoples.  Compensation and benefits expense increased $649,000 when comparing the two periods due to normal salary increases and the retained Peoples personnel.  Other operating expense and data processing expense also increased $339,000 and $191,000, respectively, when comparing the two periods. 

For the six months ended June 30, 2016, the Company reported net income of $3.4 million or $1.01 per diluted share compared to net income of $2.7 million or $0.98 per diluted share for the same period in 2015.  

Net interest income after provision for loan losses increased $2.9 million for the six months ended June 30, 2016 compared to the same period in 2015.  Interest income increased $3.6 million when comparing the two periods, due to an increase in the average balance of interest-earning assets from $439.8 million for 2015 to $681.1 million for 2016, partially offset by a decrease in the average tax-equivalent yield on interest-earning assets from 4.26% for 2015 to 3.80% for 2016.  Interest expense increased $474,000 as the average balance and average cost of interest-bearing liabilities increased from $342.9 million and 0.28%, respectively, in 2015 to $525.2 million and 0.36%, respectively, in 2016. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased from 3.98% for the six months ended June 30, 2015 to 3.44% for the same period in 2016.

The provision for loan losses was $225,000 for the six months ended June 30, 2016 compared to $50,000 for the same period in 2015.  The Bank recognized net charge-offs of $451,000 for the six months ended June 30, 2016 compared to $1.3 million for the same period in 2015.  The net charge-offs recognized in the 2015 period primarily related to a $1.2 million charge-off on a commercial loan that had been fully reserved for in prior periods.

Noninterest income increased $405,000 for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.  The increase was primarily due to increases in service charges on deposit accounts and gains on the sale of securities of $292,000 and $176,000, respectively, when comparing the two periods. 

Noninterest expenses increased $2.4 million for the six months ended June 30, 2016 as compared to the same period in 2015, primarily due to increases in compensation and benefit expense of $1.4 million, other operating expense of $699,000, data processing expense of $304,000 and occupancy and equipment expense of $152,000 when comparing the two periods.  As discussed above, each of these increases are primarily attributable to the Peoples acquisition. 

Total assets as of June 30, 2016 were $739.3 million compared to $715.8 million at December 31, 2015.  Investment securities and net loans receivable increased $62.9 million and $3.0 million, respectively, which was partially offset by a decrease in cash and cash equivalents of $38.6 million.  Investment securities increased due to management investing excess liquidity obtained in the Peoples acquisition primarily in government agency mortgage-backed securities.  Deposits also increased $20.3 million primarily due to increases in interest-bearing demand and savings deposits during the six months ended June 30, 2016.  Nonperforming assets (consisting of nonaccrual loans, accruing loans 90 days or more past due, troubled debt restructurings on accrual status, and foreclosed real estate) decreased from $11.2 million at December 31, 2015 to $9.8 million at June 30, 2016 as management continues to work to resolve nonperforming assets acquired from Peoples. 

At June 30, 2016, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines.

The Bank currently has seventeen offices in the Indiana communities of Corydon, Edwardsville, Greenville, Floyds Knobs, Palmyra, New Albany, New Salisbury, Jeffersonville, Salem and Lanesville and the Kentucky communities of Shepherdsville, Mt. Washington and Lebanon Junction.  In March 2016, the Company also acquired property for a proposed branch location near the River Ridge development in Jeffersonville, Indiana.