First Capital's 2024 Earnings: A Mixed Bag of Opportunities and Challenges

First Capital, Inc. (NASDAQ: FCAP), the holding company for First Harrison Bank, recently reported its full-year 2024 earnings, revealing a mixed performance that offers both opportunities and challenges for income-seeking investors. The company's net income for the year ended December 31, 2024, was $11.9 million, or $3.57 per diluted share, compared to $12.8 million, or $3.82 per diluted share, for the year ended December 31, 2023. While the earnings per share (EPS) decreased, the company's net interest income after provision for credit losses increased by $894,000, indicating a complex financial landscape that requires careful analysis.



One of the key drivers behind First Capital's financial performance in 2024 was the change in interest rates and the average cost of interest-bearing liabilities. The average tax-equivalent yield on interest-earning assets increased from 3.96% in 2023 to 4.49% in 2024, contributing to a $6.9 million rise in interest income. However, the average cost of interest-bearing liabilities also increased from 1.11% to 1.73%, resulting in a $5.7 million increase in interest expense. Despite these challenges, the tax-equivalent net interest margin improved from 3.16% to 3.20%, demonstrating the company's ability to manage higher costs effectively.

The increase in noninterest expenses also played a significant role in shaping First Capital's financial performance. Professional fees, compensation and benefits, and other expenses all saw substantial increases. Professional fees rose by $663,000, primarily due to increased costs associated with the company's annual audit and ongoing core contract negotiations. Compensation and benefits increased by $536,000, driven by standard increases in salary and wages, as well as higher costs for Company-provided health insurance benefits. Other expenses, which included support for local communities, check and debit card fraud losses, dues and subscriptions, and employee training and education, increased by $260,000.

These increases in noninterest expenses contributed to a decrease in the company's profit margin. For the third quarter of 2024, the profit margin was 28%, down from 31% in the third quarter of 2023. The decrease in margin was driven by higher expenses, which also affected the company's earnings per share (EPS). The EPS for the third quarter of 2024 was $0.87, down from $0.94 in the third quarter of 2023. This decrease in EPS can be attributed, in part, to the increase in noninterest expenses, which reduced the company's net income and, consequently, its EPS.



Despite these challenges, First Capital's financial performance in 2024 also presented opportunities for income-seeking investors. The company's net interest income after provision for credit losses increased by $894,000, indicating that the company was able to manage the higher costs effectively. Additionally, the company's provision for credit losses increased from $1.1 million in 2023 to $1.4 million in 2024, reflecting loan growth and management's consideration of macroeconomic uncertainty. The company recognized net charge-offs of $173,000 for the year ended December 31, 2024, compared to $469,000 for the same period in 2023, indicating a positive trend in credit quality.

In conclusion, First Capital's 2024 earnings report presents a mixed bag of opportunities and challenges for income-seeking investors. While the company's EPS decreased, its net interest income after provision for credit losses increased, and its provision for credit losses reflected loan growth and management's consideration of macroeconomic uncertainty. However, the increase in noninterest expenses and the decrease in profit margin and EPS require careful analysis and risk mitigation strategies. As always, it is important for investors to conduct their own due diligence and consider their individual investment goals and risk tolerance before making any investment decisions.