First Capital, Inc. (FCAP): A Steady Dividend Beacon in a Volatile Banking Landscape

Amidst the turbulence rocking the broader banking sector—marked by collapses, rate hikes, and market skepticism—First Capital, Inc. (FCAP) stands out as a rare exception. With its unwavering dividend growth and a regional banking model anchored in stability, FCAP offers investors a compelling income-oriented opportunity. Let’s dissect the numbers and strategy behind this under-the-radar gem.

Dividend Discipline: A 31% Payout Ratio, Not 100%

First Capital’s dividend history is a masterclass in conservative growth. Since 2020, the quarterly payout has risen from $0.24 to $0.29 per share—a 11.5% cumulative increase—while maintaining a payout ratio consistently below 31% (Figure 1). This metric, calculated as dividends divided by earnings, is a critical gauge of sustainability. At 31%, FCAP’s payout is comfortably below the 50% threshold many analysts consider risky.

Even during a slight dip in 2024 EPS to $3.57 from $3.82 in 2023, the dividend remained secure. This resilience is no accident. The company’s strategy prioritizes capital preservation over aggressive expansion, ensuring dividends stay covered by earnings.

Regional Resilience: Indiana/Kentucky’s Quiet Strength

FCAP operates through its subsidiary, First Harrison Bank, with 17 branches across Indiana and Kentucky—a region notable for its conservative lending culture and low credit risk. Unlike megabanks exposed to volatile sectors like tech or real estate, FCAP focuses on small-business loans, mortgages, and deposits from local households.

The local economy here is a stabilizing force. Unemployment in both states has remained below the national average for years, and housing markets, while modest, are steady. This low-risk environment reduces the likelihood of sudden loan defaults.

Furthermore, FCAP’s embrace of online banking adoption has strengthened its position. Over 85% of its customers now use digital platforms, reducing operational costs and enhancing accessibility—a key competitive edge in an era where traditional banks struggle to modernize.

Contrasting with Banking Sector Volatility

While FCAP navigates smoothly, the broader banking sector faces headwinds. Rising interest rates, deposit outflows, and macroeconomic uncertainty have spooked investors, as seen in the KBW Bank Index’s 15% decline year-to-date (Figure 2). Institutions like Silicon Valley Bank and Signature Bank collapsed under risky bets, but FCAP’s regional focus and low leverage (asset-to-equity ratio of 10x vs. 12x industry average) insulate it from such risks.

Why Hold FCAP Long-Term?

1. Predictable Income Stream: The $0.29 quarterly dividend, paid reliably four times a year, offers a 2.35% yield as of June 2025. With a payout ratio under 30%, there’s room for further growth.
2. Defensive Sector Play: In a volatile market, FCAP’s local banking model acts as a shock absorber. Its 95% loan-to-deposit ratio ensures liquidity, and non-interest income (fees, wealth management) now accounts for 35% of revenue—a diversification that shields profits.
3. Undervalued Valuation: Trading at 1.2x book value versus the industry average of 1.5x, FCAP offers a margin of safety.

The Call to Action

Investors seeking income in an uncertain market should look no further. FCAP’s dividend record, regional stability, and tech-forward banking model make it a sleep-well-at-night holding. With the next dividend payment due on June 27, 2025, now is the time to position for steady returns.

Final Take: FCAP isn’t just surviving—it’s thriving. In a sector rife with volatility, this is one of the few banks where income and capital safety go hand in hand. Act now to secure a slice of this dividend stalwart.

Investment Disclaimer: Past performance does not guarantee future results. Always conduct thorough research before making investment decisions.