FIRST CAPITAL INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable published financial statements. Internal control over financial reporting includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Because of inherent limitations in any system of internal control, no matter how well designed, misstatements due to error or fraud may occur and not be detected, including the possibility of the circumvention or overriding of controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, internal control effectiveness may vary over time. The Company’s management assessed our internal control over financial reporting as of December 31, 2023, based in part upon certain assumptions about the likelihood of future events. In making this assessment, management used the criteria set forth in the 2013 “Internal Control Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management asserts that the Company maintained effective internal control over financial reporting as of December 31, 2023 based on the specified criteria. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report. Changes to Internal Control over Financial Reporting There have been no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION During the quarter ended December 31, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5 - 1 trading arrangement" or "non-Rule 10b5 - 1 trading arrangement," as each item is defined in Item 408 of Regulation S-K. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 56 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information relating to the directors and officers of the Company, information regarding compliance with Section 16(a) of the Exchange Act and information regarding the audit committee and audit committee financial expert is incorporated herein by reference to the sections captioned “Item 1 – Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Audit Committee” in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders (the “Proxy Statement”). Code of Ethics The Company maintains a Code of Ethics and Business Conduct that applies to all directors, officers and employees of the Company and its subsidiaries. The Code of Ethics and Business Conduct is posted on the Company’s Internet website, www.firstharrison.com . ITEM 11. EXECUTIVE COMPENSATION The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2023 and is incorporated herein by reference. (a) Security Ownership of Certain Beneficial Owners. The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2023 and is incorporated herein by reference. (b) Security Ownership of Management The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2023 and is incorporated herein by reference. (c) Changes in Control Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant. (d) Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders - N/A 162,800 Equity compensation plans not approved by security holders - N/A - Total - N/A 162,800 The Company does not maintain any equity compensation plans that have not been approved by security holders. 57 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2023 and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required in response to this item will be contained in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders to be filed within 120 days after December 31, 2023 and is incorporated herein by reference. 58 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements. The following consolidated financial statements of the Company and its subsidiaries are included in this Annual Report on Form 10-K: Page Reference Report of Independent Registered Public Accounting Firm (PCAOB ID: 590 ) F-1 Consolidated Balance Sheets at December 31, 2023 and 2022 F-3 Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 F-4 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 F-7 Notes to Consolidated Financial Statements F-8 (a)(2) Financial Statement Schedules. All financial statement schedules are omitted as the required information either is not required or applicable, or the required information is contained in the consolidated financial statements or related notes. 59 (a)(3) Exhibits 3.1 Articles of Incorporation of First Capital, Inc. (1) 3.2 Fifth Amended and Restated Bylaws of First Capital, Inc. (2) 4.1 Description of First Capital, Inc. common stock 10.2 *Amended and Restated Change in Control Agreement between First Capital, Inc., First Harrison Bank and M. Chris Frederick (3) 10.3 *Change in Control Agreement between First Capital, Inc., First Harrison Bank and Jennifer Incantalupo (4) 10.4 *Change in Control Agreement between First Capital, Inc., First Harrison Bank and Joe Mahuron (4) 10.5 *Change in Control Agreement between First Capital, Inc., First Harrison Bank and Jennifer Meredith (4) 10.6 *Change in Control Agreement between First Capital, Inc., First Harrison Bank and Joshua P. Stevens (4) 10.7 *First Capital, Inc. 2009 Equity Incentive Plan (5) 10.8 *Director Deferred Compensation Agreement between First Federal Savings & Loan Association and James Pendleton (6) 10.9 *Director Deferred Compensation Agreement between First Federal Savings & Loan Association and Gerald Uhl (6) 10.10 *Director Deferred Compensation Agreement between First Federal Savings & Loan Association and Mark Shireman (6) 10.11 *First Capital, Inc. 2019 Equity Incentive Plan (7) 10.12 *First Capital Annual Supplemental Bonus Plan (8) 11.0 Statement Re: Computation of Per Share Earnings (incorporated by reference to Item 8, “ Financial Statements and Supplementary Data ” of this Form 10-K) 21.0 List of Subsidiaries of First Capital, Inc. 23.0 Consent of Monroe Shine and Co., Inc. 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.0 Section 1350 Certification of Chief Executive Officer & Chief Financial Officer 97.0 First Capital, Inc. – Clawback Policy 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ___________________ * Management contract or compensatory plan, contract or arrangement. (1) Incorporated by reference to Exhibit 3.1 filed with the Registration Statement on Form SB-2 on September 16, 1998, and any amendments thereto, Registration No. 333-63515, as amended by that Amendment to Articles of Incorporation provided as Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 19, 2016. (2) Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 18, 2013. (3) Incorporated by reference to Exhibit 1.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2023. (4) Incorporated by reference to Exhibit 1.1, 1.2, 1.3, and 1.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2023. (5) Incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 9, 2009. (6) Incorporated by reference to Exhibits 10.9, 10.10 and 10.11, respectively, filed with the Annual Report on Form 10-K for the year ended December 31, 2008. (7) Incorporated by reference to Exhibit 4.1 filed with the Registration Statement on Form S-8 on August 28, 2019, Registration No. 333-233485. (8) Incorporated by reference to Exhibit 10.1 filed with the Form 10-Q for the period ended September 30, 2022. 60 ITEM 16. FORM 10-K SUMMARY Not applicable. 61 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of First Capital, Inc. Corydon, Indiana Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of First Capital, Inc. (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 326, Financial Statements – Credit Losses. The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F-1 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses ( “ ACL ” ) The Company’s ACL on loans held for investment was $8.0 million as of December 31, 2023. The ACL is measured on a collective (pooled) basis when similar loan risk characteristics exist, and by individually evaluating loans that do not share similar risk characteristics. As further described in Notes 1 and 4 to the consolidated financial statements, the Company measures the ACL using a combination of the open pool/snapshot and weighted average remaining maturity (“WARM”) methods, using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Estimates are qualitatively adjusted for risk factors that are not considered within the historical loss experience. Estimating an appropriate ACL requires management to make numerous assumptions about losses that will occur over the remaining contractual life of loans recorded as of the balance sheet date. We identified the effect of the qualitative factors on the ACL as a critical audit matter as it involved especially subjective auditor judgment to audit management’s determination of the qualitative factors. The primary procedures we performed to address this critical audit matter included: ● Obtaining an understanding of the Company’s process for establishing the ACL, including the implementation of models and the basis for the qualitative factor adjustments. ● Obtaining an understanding of internal controls over the ACL, including those related to data completeness and accuracy, the establishment of qualitative factor adjustments, the mathematical accuracy of the ACL calculation, and management’s review of the reasonableness of the judgments and assumptions used to develop the qualitative factors. ● Testing the completeness and accuracy and evaluating the reliability and relevance of the data and assumptions used by management as a basis for the qualitative factors, including agreeing to internal and external sources. ● Evaluating the reasonableness of management’s judgments related to the qualitative factors and the resulting ACL. Among other procedures, our evaluation considered evidence from internal and external sources, loan portfolio performance, relevant trends within the banking industry and other peer data, and whether the assumptions were applied consistently from period to period. Monroe Shine & Co., Inc. We have served as the Company’s, or its predecessors’, auditor consecutively since at least 1968. New Albany, Indiana March 29, 2024 F-2 FIRST CAPITAL, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2023 AND 2022 (In thousands, except share and per share data) 2023 2022 ASSETS Cash and due from banks $ 20,008 $ 25,231 Interest bearing deposits with banks 3,171 3,820 Federal funds sold 15,491 37,247 Total cash and cash equivalents 38,670 66,298 Interest-bearing time deposits 3,920 3,677 Securities available for sale, at fair value (amortized cost $ 468,549 and $ 507,466 , respectively) 437,271 460,819 Securities held to maturity, at amortized cost (fair value $ 4,446 and $ 5,311 , respectively) 7,000 7,000 Loans held for sale 800 793 Loans, net of allowance for credit losses of $ 8,005 ($ 6,772 in 2022) 614,409 557,958 Federal Home Loan Bank and other stock, at cost 1,836 1,836 Premises and equipment 14,413 14,668 Accrued interest receivable 4,788 4,285 Cash value of life insurance 9,105 8,899 Goodwill 6,472 6,472 Core deposit intangible 232 379 Other assets 18,964 18,316 Total Assets $ 1,157,880 $ 1,151,400 LIABILITIES Deposits: Noninterest-bearing $ 205,535 $ 254,842 Interest-bearing 819,676 805,554 Total deposits 1,025,211 1,060,396 Borrowed funds - Bank Term Funding Program ("BTFP") 21,500 - Accrued interest payable 1,209 123 Accrued expenses and other liabilities 4,615 5,611 Total liabilities 1,052,535 1,066,130 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 3,803,833 shares ( 3,804,683 in 2022); outstanding 3,350,660 ( 3,371,362 in 2022) 38 38 Additional paid-in capital 41,588 41,636 Retained earnings-substantially restricted 97,105 88,465 Unearned stock compensation ( 249 ) ( 549 ) Accumulated other comprehensive loss ( 24,033 ) ( 35,741 ) Less treasury stock, at cost - 453,173 shares ( 433,321 in 2022) ( 9,216 ) ( 8,691 ) Total First Capital, Inc. stockholders' equity 105,233 85,158 Noncontrolling interest in subsidiary 112 112 Total equity 105,345 85,270 Total Liabilities and Equity $ 1,157,880 $ 1,151,400 See notes to consolidated financial statements. F-3 FIRST CAPITAL, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 (In thousands, except per share data) 2023 2022 2021 INTEREST INCOME Loans, including fees $ 33,350 $ 24,958 $ 23,772 Securities: Taxable 5,577 4,488 2,644 Tax-exempt 3,346 3,204 2,704 Dividends 58 22 16 Federal funds sold and other income 1,274 1,268 324 Total interest income 43,605 33,940 29,460 INTEREST EXPENSE Deposits 8,241 1,594 1,128 Advances - Federal Home Loan Bank ("FHLB") 340 - - Borrowed funds - BTFP 436 - - Total interest expense 9,017 1,594 1,128 Net interest income 34,588 32,346 28,332 Provision for (recapture of) credit losses 1,141 950 ( 325 ) Net interest income after provision for credit losses 33,447 31,396 28,657 NONINTEREST INCOME Service charges on deposit accounts 2,343 2,273 1,874 ATM and debit card fees 4,489 4,345 4,076 Commission and fee income 57 427 377 Gain on sale of securities 40 - 7 Unrealized (loss) gain on equity securities ( 207 ) ( 414 ) 328 Gain on sale of loans 421 833 2,439 Increase in cash surrender value of life insurance 206 201 219 Other income 283 262 231 Total noninterest income 7,632 7,927 9,551 NONINTEREST EXPENSE Compensation and benefits 15,002 14,697 14,537 Occupancy and equipment 1,762 1,839 1,770 Data processing 4,366 3,949 3,450 Professional fees 693 746 1,028 Advertising 329 353 354 Other expenses 3,876 3,504 3,392 Total noninterest expense 26,028 25,088 24,531 Income before income taxes 15,051 14,235 13,677 Income tax expense 2,248 2,320 2,240 Net Income 12,803 11,915 11,437 Less: net income attributable to noncontrolling interest in subsidiary 13 13 13 Net Income Attributable to First Capital, Inc. $ 12,790 $ 11,902 $ 11,424 Earnings per common share attributable to First Capital, Inc.: Basic $ 3.82 $ 3.55 $ 3.41 Diluted $ 3.82 $ 3.55 $ 3.41 Dividends per share $ 1.08 $ 1.04 $ 1.04 See notes to consolidated financial statements. F-4 FIRST CAPITAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 (In thousands) 2023 2022 2021 Net Income $ 12,803 $ 11,915 $ 11,437 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gains (losses) on securities available for sale: Unrealized holding gains (losses) arising during the period 15,253 ( 48,761 ) ( 6,670 ) Income tax (expense) benefit ( 3,635 ) 11,286 1,588 Net of tax amount 11,618 ( 37,475 ) ( 5,082 ) Less: reclassification adjustment for realized losses (gains) included in net income 114 - ( 7 ) Income tax (benefit) expense ( 24 ) - 1 Net of tax amount 90 - ( 6 ) Other Comprehensive Income (Loss), net of tax 11,708 ( 37,475 ) ( 5,088 ) Comprehensive Income (Loss) 24,511 ( 25,560 ) 6,349 Less: comprehensive income attributable to the noncontrolling interest in subsidiary 13 13 13 Comprehensive Income (Loss) Attributable to First Capital, Inc. $ 24,498 $ ( 25,573 ) $ 6,336 See notes to consolidated financial statements. F-5 FIRST CAPITAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 Accumulated Additional Other Unearned Common Paid-in Retained Comprehensive Stock Treasury Noncontrolling (In thousands) Stock Capital Earnings Income (Loss) Compensation Stock Interest Total Balances at January 1, 2021 $ 38 $ 41,684 $ 72,155 $ 6,822 $ ( 1,520 ) $ ( 8,540 ) $ 112 $ 110,751 Net income - - 11,424 - - - 13 11,437 Other comprehensive loss - - - ( 5,088 ) - - - ( 5,088 ) Cash dividends - - ( 3,509 ) - - - ( 13 ) ( 3,522 ) Stock compensation expense - - - - 487 - - 487 Purchase of treasury shares - - - - - ( 125 ) - ( 125 ) Balances at December 31, 2021 38 41,684 80,070 1,734 ( 1,033 ) ( 8,665 ) 112 113,940 Net income - - 11,902 - - - 13 11,915 Other comprehensive loss - - - ( 37,475 ) - - - ( 37,475 ) Cash dividends - - ( 3,507 ) - - - ( 13 ) ( 3,520 ) Stock compensation expense - - - - 436 - - 436 Purchase of treasury shares - - - - - ( 26 ) - ( 26 ) Restricted stock grant forfeitures - ( 48 ) - - 48 - - - Balances at December 31, 2022 38 41,636 88,465 ( 35,741 ) ( 549 ) ( 8,691 ) 112 85,270 Cumulative effect of change in accounting principles (See Note 1 - Recent Accounting Pronouncements) - - ( 529 ) - - - - ( 529 ) Balances at January 1, 2023 (as adjusted) 38 41,636 87,936 ( 35,741 ) ( 549 ) ( 8,691 ) 112 84,741 Net income - - 12,790 - - - 13 12,803 Other comprehensive income - - - 11,708 - - - 11,708 Cash dividends - - ( 3,621 ) - - - ( 13 ) ( 3,634 ) Stock compensation expense - - - - 252 - - 252 Purchase of treasury shares - - - - - ( 525 ) - ( 525 ) Restricted stock grant forfeitures - ( 48 ) - - 48 - - - Balances at December 31, 2023 $ 38 $ 41,588 $ 97,105 $ ( 24,033 ) $ ( 249 ) $ ( 9,216 ) $ 112 $ 105,345 See notes to consolidated financial statements. F-6 FIRST CAPITAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 (In thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 12,803 $ 11,915 $ 11,437 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 1,583 2,013 2,223 Depreciation and amortization expense 1,028 1,070 1,143 Deferred income taxes ( 698 ) ( 118 ) ( 131 ) Stock compensation expense 252 436 487 Increase in cash value of life insurance ( 206 ) ( 201 ) ( 219 ) Gain on sale of securities ( 40 ) - ( 7 ) Provision for (recapture of) credit losses 1,141 950 ( 325 ) Proceeds from sales of loans 32,004 51,689 136,414 Loans originated for sale ( 31,590 ) ( 49,236 ) ( 128,447 ) Gain on sale of loans ( 421 ) ( 833 ) ( 2,439 ) Amortization of tax credit investment 1,990 355 355 Unrealized loss (gain) on equity securities 207 414 ( 328 ) Net realized and unrealized (gain) loss on foreclosed real estate - ( 15 ) 5 (Increase) decrease in accrued interest receivable ( 503 ) ( 855 ) 4 Increase (decrease) in accrued interest payable 1,086 26 ( 56 ) Net change in other assets/liabilities ( 4,473 ) ( 1,079 ) 1,515 Net Cash Provided By Operating Activities 14,163 16,531 21,631 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in interest-bearing time deposits ( 243 ) 1,162 1,550 Purchase of securities available for sale ( 37,229 ) ( 94,325 ) ( 252,292 ) Purchase of securities held to maturity - ( 5,000 ) ( 2,000 ) Proceeds from maturities of securities available for sale 37,990 7,916 42,164 Proceeds from sales of securities available for sale 20,641 - 1,798 Principal collected on mortgage-backed obligations 15,816 22,150 35,611 Proceeds from sale of equity securities 156 - - Net (increase) decrease in loans receivable ( 58,217 ) ( 75,609 ) 17,283 Investment in tax credit entities ( 2,048 ) - ( 280 ) Investment in technology fund ( 250 ) ( 100 ) ( 120 ) Proceeds from sale of foreclosed real estate 64 39 45 Proceeds from redemption of Federal Home Loan Bank stock - 152 - Proceeds from sale of premises and equipment - - 65 Purchase of premises and equipment ( 627 ) ( 415 ) ( 288 ) Net Cash Used In Investing Activities ( 23,947 ) ( 144,030 ) ( 156,464 ) CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in deposits ( 35,185 ) 24,834 135,101 Advances from FHLB and BTFP 354,500 - - Repayment of advances from the FHLB and BTFP ( 333,000 ) - - Purchase of treasury stock ( 502 ) - ( 40 ) Taxes paid on stock award shares for employees ( 23 ) ( 26 ) ( 85 ) Dividends paid ( 3,634 ) ( 3,520 ) ( 3,522 ) Net Cash (Used In) Provided By Financing Activities ( 17,844 ) 21,288 131,454 Net Decrease in Cash and Cash Equivalents ( 27,628 ) ( 106,211 ) ( 3,379 ) Cash and cash equivalents at beginning of year 66,298 172,509 175,888 Cash and Cash Equivalents at End of Year $ 38,670 $ 66,298 $ 172,509 See notes to consolidated financial statements. F-7 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ( 1 ) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations First Capital, Inc. (the “Company”) is the financial holding company of First Harrison Bank (the “Bank”), a wholly-owned subsidiary. The Bank is an Indiana chartered commercial bank which provides a variety of banking services to individuals and business customers through 18 locations in Indiana and Kentucky. The Bank’s primary source of revenue is real estate mortgage loans. The Bank originates mortgage loans for sale in the secondary market. 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 company that holds and manages an investment securities portfolio. First Harrison REIT, Inc. is a wholly-owned subsidiary of First Harrison Holdings, Inc. which holds a portion of the Bank’s real estate mortgage loan portfolio. Heritage Hill, LLC is a wholly-owned subsidiary of the Bank that is currently inactive. FHB Risk Mitigation Services, Inc. (the “Captive”) was a wholly-owned insurance subsidiary of the Company that provided property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance to nine other third party insurance captives, for which insurance was not available or economically feasible in the insurance marketplace. Refer to Note 24 – Captive Subsidiary for details regarding the status of the Captive. Basis of Consolidation and Reclassifications The consolidated financial statements include the accounts of the Company and its subsidiaries, have been prepared in accordance with generally accepted accounting principles in the United States of America and conform to general practices in the banking industry. Intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications had no effect on net income or stockholders’ equity. Statements of Cash Flows For purposes of the statements of cash flows, the Company has defined cash and cash equivalents as cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing deposits with other banks with an original maturity of 90 days or less, money market funds and federal funds sold. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the Allowance for Credit Losses (“ACL”) on loans and the valuation of real estate and other assets acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the ACL on loans and the valuation of foreclosed real estate, management obtains independent appraisals for significant properties. A majority of the Company’s loan portfolio consists of single-family residential and commercial real estate loans in the southern Indiana and Louisville, Kentucky metropolitan area. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio and the recovery of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. F- 8 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Use of Estimates – continued While management uses available information to recognize losses on loans and foreclosed real estate, further reductions in the carrying amounts of loans and foreclosed real estate may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated. Debt Securities Available for Sale Debt Securities : Available for sale debt securities consist primarily of mortgage-backed and other debt securities and are stated at fair value. The Company holds mortgage-backed securities and other debt 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”), government-sponsored enterprises (collectively referred to as government agencies), as well as collateralized mortgage obligations (“CMOs”) and other mortgage-backed securities. Mortgage-backed securities represent participating interests in pools of long-term first mortgage loans originated and serviced by the issuers of the securities. CMOs are complex mortgage-backed securities that restructure the cash flows and risks of the underlying mortgage collateral. The Company also holds debt securities issued by the U.S. Treasury and municipalities and political subdivisions of state and local governments. Amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity, adjusted for anticipated prepayments. Unrealized gains and losses, net of tax, on available for sale debt securities are included in other comprehensive income and the accumulated unrealized holding gains and losses are reported as a separate component of equity until realized. Realized gains and losses on the sale of available for sale debt securities are determined using the specific identification method and are included in other noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any decline in fair value that has not been recorded through an ACL is recognized in other comprehensive income, net of applicable taxes. Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities totaled $ 2.4 million at December 31, 2023, was reported in accrued interest receivable on the consolidated balance sheet and is excluded from the estimate of credit losses. F- 9 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Held to Maturity Debt Securities: Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to maturity, adjusted for anticipated prepayments. The Company classifies certain corporate debt obligations as held to maturity. Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. Accrued interest receivable on held to maturity debt securities totaled $ 18,000 at December 31, 2023, was reported in accrued interest receivable on the consolidated balance sheet and is excluded from the estimate of credit losses. The held to maturity securities portfolio includes subordinated debt obligations issued by other bank holding companies. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At the time of adoption and as of December 31, 2023, the estimated ACL on held to maturity debt securities was immaterial. Equity Securities Equity securities, other than restricted securities such as FHLB stock, are carried at fair value, with changes in fair value included in earnings. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Dividends received from equity securities, other than restricted securities such as FHLB stock, are included in other noninterest income. FHLB Stock The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. Investments in non-marketable equity securities such as FHLB stock are carried at cost and are classified as restricted securities and periodically evaluated for impairment based on ultimate recovery of par value. Dividends received from these investments are included in dividend income. Loans and ACL Loans Held for Investment Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. The Company grants real estate mortgage, commercial business and consumer loans. 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. Accrued interest receivable on loans totaled $ 2.3 million at December 31, 2023, was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses. F- 10 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Loans and ACL – continued Nonaccrual Loans 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. The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an ACL on accrued interest receivable. 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. Impaired and Collateral Dependent Loans 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, past loan modifications, 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. 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 individually evaluated for credit losses, 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 evaluation and ACL 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 December 31, 2023, all of the Bank’s loans evaluated on an individual basis were considered collateral dependent. F- 11 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Loans and ACL – continued Loan Modifications Made to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, the Company prospectively adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2022 - 02, which eliminated the accounting for troubled debt restructurings (“TDR”) while establishing a new standard for the treatment of modifications made to borrowers experiencing financial difficulties. As such, effective with the adoption of the new standard, the Company will not include, prospectively, financial difficulty modifications in its presentation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included TDRs, has not been adjusted. The Company’s loan modifications for borrowers experiencing financial difficulties will typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modifications in 2023 resulted in the permanent reduction of the recorded investment in the loan. TDRs Prior to Adoption of ASU 2022 - 02 The modification of a loan is considered to be a TDR if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it would not otherwise consider. By granting the concession, the Company expects to obtain more cash or other value from the debtor, or to increase the probability of receipt, than would be expected by not granting the concession. The concession may include, but is not limited to, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount of the debt. A concession will be granted when, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest at the original stated rate. A concession may also be granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification. A TDR can involve a loan remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. A TDR on nonaccrual status is restored to accrual status when the borrower has demonstrated the ability to make future payments in accordance with the restructured terms, including consistent and timely payments of at least six consecutive months according to the restructured terms. ACL – Loans The ACL is a valuation account that is deducted from an asset’s amortized cost basis to present the net amount expected to be collected on the asset. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged-off. F- 12 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Loans and ACL – continued The Company utilizes a combination of the Open Pool/Snapshot and Weighted Average Remaining Maturity (“WARM”) methods in determining expected future credit losses. The Open Pool/Snapshot method takes a snapshot of a loan portfolio at a point in time in history and tracks that loan portfolio’s performance in the subsequent periods until its ultimate disposition. The WARM method uses average annual charge-off rates and the remaining life of the loan to estimate the ACL. For the Company’s loan portfolios, the remaining contractual life for each loan is adjusted by the expected scheduled payments and estimated prepayments. The average annual charge-off rate is applied to the amortization adjusted remaining life of the loan to determine the unadjusted lifetime historical charge-off rate. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back periods for the loan portfolio range from one to 10 years depending on the WARM of the given portfolio segment, and are updated on a quarterly basis. The Company estimates the ACL on loans using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for losses reflected by peers, changes in underwriting standards, changes in economic conditions, changes in delinquency levels, collateral values and other factors. Qualitative adjustments reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration industry and collateral concentrations, acquired loan portfolio characteristics and other credit-related analytics as deemed appropriate. 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 in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary. The ACL is measured on a collective (pooled) basis when similar risk characteristics exist. The Company’s pools/segments are largely determined based on loan types as defined by Call Report instructions. The Company has identified and utilizes the following portfolio segments: 1–4 Family Residential Mortgage – 1–4 Family Residential Mortgage loans are primarily secured by 1 - 4 family residences that are owner-occupied and serve as the primary residence of the borrower. In addition, the Company typically has a senior ( 1st lien) position securing the collateral of loans in this portfolio. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment may also be impacted by changes in residential property values. Home Equity and Second Mortgage – Home Equity and Second Mortgage loans and lines of credit are primarily secured by 1 - 4 family residences that are owner-occupied and serve as the primary residence of the borrower. However, the Company typically has a junior lien position securing the collateral of loans in this portfolio. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment may also be impacted by changes in residential property values. While secured by collateral similar to that of the 1–4 Family Residential Mortgage loans, loans within this segment are considered to carry elevated risk due to the Company’s junior lien position on the underlying collateral property. F- 13 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Loans and ACL – continued Multi-family Residential – Multi-family Residential loans are primarily secured by properties such as apartment complexes and other multi-tenant properties within the Company’s market area. In some situations, the collateral may reside outside of the Company’s typical market area. Repayment of these loans is often dependent on the successful operation and management of the properties and collection of associated rents. Repayment of such loans may be affected by adverse conditions in the real estate market or the economy. 1–4 Family Residential Construction – 1–4 Family Residential Construction loans are generally secured by 1 - 4 family residences that will be owner-occupied upon completion. Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment may also be impacted by changes in residential property values. Other Construction, Development and Land – Other Construction, Development and Land loans include loans secured by multi-family properties, commercial projects, and vacant land. This portfolio includes both owner-occupied and speculative investment properties. Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, the borrower’s ability to use funds generated by a project to service a loan until a project is completed, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing. Commercial Real Estate – Commercial Real Estate loans are comprised of loans secured by various types of collateral including warehouses, retail space, and mixed-use buildings, among others, located in the Company’s primary lending area. Risks related to commercial real estate lending are related to the market value of the property taken as collateral, the underlying cash flows, and general economic condition of the local real estate market. Repayment of these loans is generally dependent on the ability of the borrower to attract tenants at lease rates that provide for adequate debt service and can be impacted by local economic conditions which impact vacancy rates. The Company generally obtains loan guarantees from financially capable parties for Commercial Real Estate loans. To a lesser degree, this segment also includes loans secured by farmland. The risks associated with loans secured by farmland are related to the market value of the property taken as collateral and the underlying cash flows from farming operations and general economic conditions. Commercial Business – Commercial Business loans include lines of credit to businesses, term loans and letters of credit secured by business assets such as equipment, accounts receivable, inventory, or other assets excluding real estate. Loans in this portfolio may also be unsecured and are generally made to finance capital expenditures or fund operations. Commercial Business loans contain risks related to the value of the collateral securing the loan and the repayment is primarily dependent upon the financial success and viability of the borrower. As with Commercial Real Estate loans, the Company generally obtains loan guarantees from financially capable parties for Commercial Business loans. Consumer and Other Loans – Consumer and Other Loans consist mainly of loans secured by new and used automobiles and trucks, recreational vehicles such as boats and RVs, mobile homes and secured and unsecured loans to individuals. The risks associated with these loans are related to local economic conditions including the unemployment level. To a lesser degree, this segment also includes loans secured by lawn and farm equipment, well as farm output and loans secured by marketable securities. The risks associated with these loans are related to local economic conditions including the unemployment level, general economic conditions impacting crop prices, the supply chain and the fair value of the security collateral. F- 14 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Loans and ACL – continued Loans that do not share risk characteristics are evaluated on an individual basis. In addition, loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs. ACL – Off-Balance Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is included in other liabilities on the consolidated balance sheets and is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected utilization rates based on Regulatory Credit Conversion Factors are compared to the current funded portion of the total commitment amount as a practical expedient for funded exposure at default. Loan Charge-Offs 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 ACL on loans individually evaluated for credit losses. Partial charge-offs are included in the Company’s historical loss experience used to estimate the collective (pooled) component of the ACL on loans. Specific reserves are not considered charge-offs in management’s analysis of the ACL on loans 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. Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market value. Aggregate market value is determined based on the quoted prices under a “best efforts” sales agreement with a third party. Net unrealized losses are recognized through a valuation allowance by charges to income. Realized gains on sales of mortgage loans are determined using the specific identification method and are included in noninterest income. Mortgage loans are sold with servicing released. Commitments to originate mortgage loans held for sale are considered derivative financial instruments to be accounted for at fair value. The Bank’s mortgage loan commitments subject to derivative accounting are fixed-rate mortgage loan commitments at market rates when initiated. At December 31, 2023, the Bank had no commitments required to be accounted for at fair value as all mortgage loan commitments were best efforts commitments where specific loans were committed to be delivered if and when the loan closed. Fair value is estimated based on fees that would be charged on commitments with similar terms. F- 15 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Transfers of Financial Assets The Company accounts for transfers and servicing of financial assets in accordance with FASB Accounting Standards Codification (“ASC”) Topic 860, Transfers and Servicing . Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the Company, ( 2 ) the transferee obtains the right (free from conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and ( 3 ) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Transfers of a portion of a loan must meet the criteria of a participating interest. If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, and the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan. The Company sells financial assets in the normal course of business, the majority of which are related to residential mortgage loan sales through established programs and commercial loan sales through participation agreements. In accordance with accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. With the exception of servicing and certain performance-based guarantees, the Company's continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses. Foreclosed Real Estate Foreclosed real estate includes formally foreclosed property and property obtained via a deed in lieu of foreclosure that is currently held for sale. At the time of acquisition, foreclosed real estate is recorded at fair value less estimated costs to sell, which becomes the property’s new basis. Any write-downs based on the property’s fair value at the date of acquisition are charged to the ACL on loans. After acquisition, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Costs incurred in maintaining foreclosed real estate and subsequent impairment adjustments to the carrying amount of a property, if any, are included in net loss on foreclosed real estate. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. The Company uses the straight line method of computing depreciation at rates adequate to amortize the cost of the applicable assets over their estimated useful lives. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold, or otherwise disposed of, are removed from the related accounts and any gain or loss is included in earnings. Cash Value of Life Insurance The Bank has purchased life insurance policies on certain directors, officers and key employees to offset costs associated with the Bank’s compensation and benefit programs. The Bank is the owner and is a joint or sole beneficiary of the policies. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Income from the increase in cash surrender value of the policies and income from the realization of death benefits is reported in noninterest income. F- 16 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Goodwill and Other Intangibles Goodwill recognized in a business combination represents the excess of the cost of the acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is evaluated for possible impairment at least annually or more frequently upon the occurrence of an event or change in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: ( 1 ) a significant adverse change in legal factors or in business climate, ( 2 ) unanticipated competition, or ( 3 ) an adverse action or assessment by a regulator. If the carrying amount of the goodwill exceeds the fair value of the reporting unit, an impairment loss is recognized in earnings equal to that excess amount. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Other intangible assets consist of acquired core deposit intangibles. Core deposit intangibles are amortized over the estimated economic lives of the acquired core deposits. The carrying amount of core deposit intangibles and the remaining estimated economic life are evaluated annually or whenever events or circumstances indicate the carrying amount may not be recoverable or the remaining period of amortization requires revision. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset is its new accounting basis. Stock-Based Compensation The Company has adopted the fair value based method of accounting for stock-based compensation prescribed in FASB ASC Topic 718 for its stock compensation plans. Advertising Costs Advertising costs are charged to operations when incurred. Income Taxes When income tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other positions are subject to some degree of uncertainty regarding the merits of the position taken or the amount of the position that would be sustained. The Company recognizes the benefits of a tax position in the consolidated financial statements of the period during which, based on all available evidence, management believes it is more-likely-than- not (more than 50 percent probable) that the tax position would be sustained upon examination. Income tax positions that meet the more-likely-than- not threshold are measured as the largest amount of income tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the income tax positions claimed on income tax returns that exceeds the amount measured as described above is reflected as a liability for unrecognized income tax benefits in the consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities, if there were an examination. Interest and penalties associated with unrecognized income tax benefits are classified as additional income taxes in the consolidated statements of income. F- 17 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred income taxes. Income tax reporting and financial statement reporting rules differ in many respects. As a result, there will often be a difference between the carrying amount of an asset or liability as presented in the accompanying consolidated balance sheets and the amount that would be recognized as the tax basis of the same asset or liability computed based on the effects of tax positions recognized, as described in the preceding paragraph. These differences are referred to as temporary differences because they are expected to reverse in future years. Deferred income tax assets are recognized for temporary differences where their future reversal will result in future tax benefits. Deferred income tax assets are also recognized for the future tax benefits expected to be realized from net operating loss or tax credit carryforwards. Deferred income tax liabilities are recognized for temporary differences where their future reversal will result in the payment of future income taxes. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Comprehensive Income Comprehensive income consists of reported net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that are recorded as an element of stockholders’ equity but are excluded from reported net income. Other comprehensive income includes changes in the unrealized gains and losses on securities available for sale. Amounts reclassified out of unrealized gains or losses on securities available for sale included in accumulated other comprehensive income or loss (“AOCI”) are included in the net gain (loss) on sale of available for sale securities line item in the consolidated statements of income. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Concentration of Credit Risk The Company and its subsidiaries maintain cash balances at various financial institutions. At times, these cash balances may be in excess of federally insured limits. F- 18 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) Recent Accounting Pronouncements The following are summaries of recently issued or adopted accounting pronouncements that impact the accounting and reporting practices of the Company: Recently Adopted Accounting Guidance In June 2016, the FASB issued ASU No. 2016 - 13, Financial Instruments – Credit Losses (Topic 326 ) . The update, commonly referred to as the current expected credit loss methodology (“CECL”), replaces the incurred loss methodology for recognizing credit losses under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary. In November 2019, the FASB issued ASU No. 2019 - 10 which delayed the effective date of ASU 2016 - 13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. The Company met the definition of a smaller reporting company as of that date and was not required to adopt the standard until January 1, 2023. Effective January 1, 2023, the Company adopted ASU 2016 - 13, as amended, under the modified retrospective method. The adoption replaced the allowance for loan losses with the ACL on loans on the consolidated balance sheets and replaced the related provision for loan losses with the provision for credit losses on loans on the consolidated statements of income. Upon adoption, the Company recorded an increase in the beginning ACL on loans of $ 561,000 . In addition, the Company established an ACL related to unfunded loan commitments of $ 131,000 upon adoption of CECL. The use of the modified retrospective method of adoption resulted in the Company recording a $ 529,000 reduction (net of tax) in retained earnings as of January 1, 2023. Results for reporting periods after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company expanded the loan portfolio segments used to determine the ACL on loans into eight loan segments as opposed to seven loan segments under the incurred loss methodology. The following table illustrates the impact of the segment expansion as of January 1, 2023. Segment Amortized Cost at Amortized Cost at Portfolio December 31, 2022 (In thousands) December 31, 2022 Reclassification after Reclassification Residential $ 155,445 $ ( 155,445 ) $ - 1-4 Family Residential Mortgage - 116,392 116,392 Multifamily Residential - 38,962 38,962 Home Equity and Second Mortgage 58,985 92 59,077 Commercial Real Estate 161,332 ( 62 ) 161,270 Construction 42,259 ( 42,259 ) - Land 21,874 ( 21,874 ) - 1-4 Family Residential Construction - 16,575 16,575 Other Construction, Development and Land - 47,633 47,633 Commercial Business 60,806 7,248 68,054 Consumer and Other 64,029 ( 7,262 ) 56,767 $ 564,730 $ - $ 564,730 F- 19 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 1 - continued) In March 2023, the FASB issued ASU No. 2023 - 02, Investments – Equity Method and Joint Ventures (Topic 323 ): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method . The ASU allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received, and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense. This also aligns the treatment of other tax equity investments with that allowed for low income housing tax credit (“LIHTC”) investments. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any interim period. The Company already utilized the proportional amortization method for its LIHTC investment and early adopted ASU 2023 - 02 in conjunction with its initial investment in an investment tax credit producing solar property described in more detail in Note 23 – Renewable Energy Tax Credit Investment . The adoption of the ASU did not have a material impact on the Company’s consolidated financial position or results of operations. Recently Issued but Not Adopted Accounting Guidance In June 2022, the FASB issued ASU No. 2022 - 03, Fair Value Measurements (Topic 820 ), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The adoption of the ASU is not expected to have a material impact on the Company’s financial position or results of operations. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures . Among other things, the ASU requires that public business entities on an annual basis ( 1 ) disclose specific categories in the income tax rate reconciliation and ( 2 ) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). In addition, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts are equal to or greater than five percent of total income taxes paid (net of refunds received). For public business entities, the ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The adoption of the ASU is not expected to have a material impact on the Company’s financial position or results of operations. The Company has determined that all other recently issued accounting pronouncements will not have a material impact on the Company’s consolidated financial statements or do not apply to its operations. F- 20 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 2 ) RESTRICTION ON CASH AND DUE FROM BANKS Previously, the Bank was required to maintain reserve balances on hand and with the Federal Reserve Bank (“FRB”). However, the FRB Board set the reserve requirement to 0% effective March 26, 2020. ( 3 ) INVESTMENT SECURITIES Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at December 31, 2023 and 2022 are summarized as follows: Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value December 31, 2023 Securities available for sale: Agency mortgage-backed securities $ 81,166 $ - $ 9,122 $ 72,044 Agency CMO 25,402 94 323 25,173 Other debt securities: Agency notes and bonds 138,174 38 8,707 129,505 Treasury notes and bonds 64,758 - 1,674 63,084 Municipal obligations 159,049 655 12,239 147,465 Total securities available for sale $ 468,549 $ 787 $ 32,065 $ 437,271 Securities held to maturity: Other debt securities: Corporate notes $ 7,000 $ - $ 2,554 $ 4,446 Total securities held to maturity $ 7,000 $ - $ 2,554 $ 4,446 December 31, 2022 Securities available for sale: Agency mortgage-backed securities $ 95,056 $ - $ 11,193 $ 83,863 Agency CMO 9,682 20 349 9,353 Other debt securities: Agency notes and bonds 151,143 - 13,162 137,981 Treasury notes and bonds 82,646 - 3,914 78,732 Municipal obligations 168,939 177 18,226 150,890 Total securities available for sale $ 507,466 $ 197 $ 46,844 $ 460,819 Securities held to maturity: Other debt securities: Corporate notes $ 7,000 $ - $ 1,689 $ 5,311 Total securities held to maturity $ 7,000 $ - $ 1,689 $ 5,311 F- 21 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 3 - continued) The amortized cost and fair value of debt securities as of December 31, 2023, 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 Securities Held to Maturity Amortized Fair Amortized Fair Cost Value Cost Value (In thousands) Due in one year or less $ 61,941 $ 60,796 $ - $ - Due after one year through five years 166,347 156,117 - - Due after five years through ten years 42,731 40,603 2,000 1,279 Due after ten years 90,962 82,538 5,000 3,167 361,981 340,054 7,000 4,446 Mortgage-backed securities and CMO 106,568 97,217 - - $ 468,549 $ 437,271 $ 7,000 $ 4,446 At December 31, 2023, certain securities available for sale with an amortized cost of $ 147.5 million and fair value of $ 139.6 million were pledged to secure public fund deposits, a blanket collateral agreement with the FHLB and borrowing under the FRB’s BTFP. At December 31, 2023 and 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, with an aggregate book value greater that 10% of stockholders’ equity. Information pertaining to investment securities with gross unrealized losses at December 31, 2023 and 2022, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows. F- 22 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 3 - continued) Number of Gross Investment Fair Unrealized Positions Value Losses (Dollars in thousands) December 31, 2023: Securities available for sale: Continuous loss position less than twelve months: Agency CMO 3 $ 8,019 $ 30 Agency notes and bonds 3 2,754 12 Muncipal obligations 74 32,124 2,405 Total less than twelve months 80 42,897 2,447 Continuous loss position more than twelve months: Agency mortgage-backed securities 96 72,044 9,122 Agency CMO 22 4,998 293 Agency notes and bonds 52 123,416 8,695 Treasury notes and bonds 21 63,084 1,674 Muncipal obligations 130 79,643 9,834 Total more than twelve months 321 343,185 29,618 Total securities available for sale 401 $ 386,082 $ 32,065 Securities held to maturity: Continuous loss position more than twelve months: Corporate notes 4 $ 4,446 $ 2,554 Total more than twelve months 4 4,446 2,554 Total securities held to maturity 4 $ 4,446 $ 2,554 December 31, 2022: Securities available for sale: Continuous loss position less than twelve months: Agency mortgage-backed securities 69 $ 27,561 $ 2,214 Agency CMO 23 6,287 336 Agency notes and bonds 15 35,079 1,314 Treasury notes and bonds 17 31,615 997 Muncipal obligations 154 81,218 5,960 Total less than twelve months 278 181,760 10,821 Continuous loss position more than twelve months: Agency mortgage-backed securities 28 56,303 8,979 Agency CMO 3 257 13 Agency notes and bonds 45 102,902 11,848 Treasury notes and bonds 13 47,117 2,917 Muncipal obligations 98 52,279 12,266 Total more than twelve months 187 258,858 36,023 Total securities available for sale 465 $ 440,618 $ 46,844 Securities held to maturity: Continuous loss position less than twelve months: Corporate notes 3 $ 3,779 $ 1,221 Total less than twelve months 3 3,779 1,221 Continuous loss position more than twelve months: Corporate notes 1 1,532 468 Total more than twelve months 1 1,532 468 Total securities held to maturity 4 $ 5,311 $ 1,689 F- 23 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 3 - continued) The Company has not identified any specific available for sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Company reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. At December 31, 2023, management concluded that in all instances, securities with fair values less than carrying value were due to market and other factors; thus, no credit loss provision was required. In addition, management assesses held to maturity securities for credit losses on a quarterly basis. The assessment includes review of performance metrics, identification of delinquency and evaluation of market factors. Based on this analysis, management concludes the decline in fair value is due to changes in interest rates and other market factors. Accordingly, no credit loss provision was recorded in earnings for the year ended December 31, 2023. At December 31, 2023, the municipal obligations and U.S. government agency debt securities, including agency mortgage-backed securities, Treasury notes and bonds, and agency notes and bonds, in a loss position had depreciated approximately 7.7 % from the amortized cost basis. All of the U.S. government agency securities and municipal securities are issued by U.S. government agencies, government-sponsored enterprises, or municipal governments, and are secured by first mortgage loans or municipal project revenues. At December 31, 2023, the corporate notes classified as held to maturity in a loss position had depreciated approximately 36.5 % from the amortized cost basis. 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 all debt securities in an unrealized loss position until maturity, or the foreseeable future if classified as available for sale, no credit loss is deemed to exist. On January 1, 2023, the Company adopted ASU 2016 - 13, which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. ASU 2016 - 13 requires an allowance on lifetime expected credit losses on held to maturity debt securities. As of January 1, 2023 and December 31, 2023, the Company estimated the expected credit losses to be immaterial based on the composition of the held to maturity securities portfolio. While management does not anticipate any credit losses at December 31, 2023, additional deterioration in market and economic conditions may have an adverse impact on credit quality in the future. During the year ended December 31, 2023, the Company realized gross gains of $ 79,000 and gross losses of $ 193,000 on the sale of available for sale securities. During the year ended December 31, 2021, the Company realized gross gains of $ 12,000 and gross losses of $ 5,000 on the sale of available for sale securities. During the year ended December 31, 2022, the Company sold no available for sale securities. 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 years ended December 31, 2023, 2022 and 2021, the Company recognized an unrealized loss of $ 207,000 , an unrealized loss of $ 414,000 and an unrealized gain of $ 328,000 , respectively, on this equity investment. At December 31, 2023 and 2022, the equity investment had a fair value of $ 1.3 million and $ 1.5 million, respectively, and is included in other assets on the consolidated balance sheets. F- 24 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 3 - continued) In October 2021 the Company entered into an agreement to invest in a bank technology fund through a limited partnership. At December 31, 2023 and 2022, the Company’s investment in the limited partnership was $ 1.0 million and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the limited partnership investment at December 31, 2023 and 2022 was $ 530,000 and $ 780,000 , respectively, and is reflected in other liabilities on the consolidated balance sheets. The Company expects to fulfill the commitment as capital calls are made through 2026. The investment is accounted for as an equity security without a readily determinable fair value, and has been recorded at cost, less any impairment, and adjustments resulting from observable price changes. There were no impairments or adjustments on equity securities without readily determinable fair values during the years ended December 31, 2023, 2022 or 2021. In December 2015, the Company acquired Peoples Bancorp, Inc. of Bullitt County and its wholly-owned bank subsidiary, Peoples Bank of Bullitt County (“Peoples”), headquartered in Shepherdsville, Kentucky. Peoples owned Class B shares of VISA that were carried at an amortized costs basis of zero and were subsequently transferred to the Company. During the year ended December 31, 2023, the Company sold all the VISA Class B shares owned for a gross gain of $ 157,000 . There were no such sales during the years ended December 31, 2022 or 2021. ( 4 ) LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans at December 31, 2023 and 2022 consisted of the following: December 31, December 31, (In thousands) 2023 2022 (As reclassified) 1-4 Family Residential Mortgage $ 133,480 $ 116,269 Home Equity and Second Mortgage 62,070 57,872 Multifamily Residential 39,963 38,973 1-4 Family Residential Construction 15,667 16,575 Other Construction, Development and Land 76,713 47,632 Commercial Real Estate 168,757 161,362 Commercial Business 68,223 68,066 Consumer and Other 56,373 56,768 Principal loan balance 621,246 563,517 Deferred loan origination fees and costs, net 1,168 1,213 Allowance for credit losses ( 8,005 ) ( 6,772 ) Loans, net $ 614,409 $ 557,958 F- 25 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) At December 31, 2023 and 2022, residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding 90% amounted to approximately $ 785,000 and $ 1.0 million, respectively. The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons and does not involve more than normal risk of collectability or present other unfavorable features. The following table represents the aggregate activity for related party loans during the years ended December 31, 2023 and 2022. Adjustments are made to reflect new directors and officers added during the year, as well as directors and officers that left the Company during the year. (In thousands) 2023 2022 Beginning balance $ 6,279 $ 7,233 Adjustments due to officer and director changes ( 14 ) ( 711 ) New loans 837 1,189 Payments ( 1,225 ) ( 1,432 ) Ending balance $ 5,877 $ 6,279 Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at December 31, 2023 and 2022 were $ 2.6 million and $ 2.7 million, respectively. F- 26 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) The following table provides the components of the Company’s amortized cost basis in loans at December 31, 2023: Other 1-4 Family Home Equity 1-4 Family Construction, Residential and Second Multifamily Residential Development Commercial Commercial Consumer Mortgage Mortgage Residential Construction and Land Real Estate Business and Other Total (In thousands) Amortized Cost Basis in Loans: Principal loan balance $ 133,480 $ 62,070 $ 39,963 $ 15,667 $ 76,713 $ 168,757 $ 68,223 $ 56,373 $ 621,246 Net deferred loan origination fees and costs 121 1,231 ( 17 ) - ( 44 ) ( 112 ) ( 11 ) - 1,168 Amortized cost basis in loans $ 133,601 $ 63,301 $ 39,946 $ 15,667 $ 76,669 $ 168,645 $ 68,212 $ 56,373 $ 622,414 The following table presents the activity in the ACL on loans by class of loan for the year ended December 31, 2023: Other 1-4 Family Home Equity 1-4 Family Construction, Residential and Second Multifamily Residential Development Commercial Commercial Consumer Mortgage Mortgage Residential Construction and Land Real Estate Business and Other Total (In thousands) ACL on Loans: Beginning balance, prior to adoption of ASC 326 $ 1,036 $ 531 $ 346 $ 206 $ 587 $ 2,029 $ 1,156 $ 881 $ 6,772 Impact of adopting ASC 326 423 ( 26 ) ( 3 ) ( 9 ) 13 ( 130 ) ( 142 ) 435 561 Provision for credit losses 41 ( 86 ) ( 11 ) 11 204 220 613 149 1,141 Charge-offs ( 31 ) ( 15 ) - - - - ( 205 ) ( 430 ) ( 681 ) Recoveries 21 2 - - - - 9 180 212 Ending balance $ 1,490 $ 406 $ 332 $ 208 $ 804 $ 2,119 $ 1,431 $ 1,215 $ 8,005 F- 27 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. There have been no significant changes to the types of collateral securing the Company’s collateral dependent loans. The following table presents the amortized cost basis of, and ACL allocation to, individually evaluated collateral-dependent loans by class of loans as of December 31, 2023: Real ACL Estate Other Total Allocation (In thousands) 1-4 Family Residential Mortgage $ 1,651 $ - $ 1,651 $ 9 Home Equity and Second Mortgage 548 - 548 - Multifamily Residential - - - - 1-4 Family Residential Construction 87 - 87 60 Other Construction, Development and Land 54 - 54 - Commercial Real Estate 1,055 - 1,055 - Commercial Business - 38 38 - Consumer and Other - - - - $ 3,395 $ 38 $ 3,433 $ 69 Nonperforming loans consists of nonaccrual loans and loans past due and still accruing interest. The following table presents the amortized cost basis of loans on nonaccrual status and loans 90 days or more past due still accruing as of December 31, 2023: Loans 90+ Days Total Nonaccrual Loans Nonaccrual Loans Total Past Due Nonperforming with No ACL with An ACL Nonaccrual Still Accruing Loans (In thousands) 1-4 Family Residential Mortgage $ 1,120 $ 36 $ 1,156 $ - $ 1,156 Home Equity and Second Mortgage 454 - 454 - 454 Multifamily Residential - - - - - 1-4 Family Residential Construction - 87 87 - 87 Other Construction, Development and Land 54 - 54 - 54 Commercial Real Estate - - - - - Commercial Business - - - - - Consumer and Other - - - - - Total $ 1,628 $ 123 $ 1,751 $ - $ 1,751 No interest income was recognized on nonaccrual loans during the year ended December 31, 2023. F- 28 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) The following table presents the aging of the amortized cost basis in loans at December 31, 2023: 30-59 Days 60-89 Days 90 Days or More Total Total Past Due Past Due Past Due Past Due Current Loans (In thousands) 1-4 Family Residential Mortgage $ 2,104 $ 335 $ 482 $ 2,921 $ 130,680 $ 133,601 Home Equity and Second Mortgage 396 70 - 466 62,835 63,301 Multifamily Residential - - - - 39,946 39,946 1-4 Family Residential Construction - - - - 15,667 15,667 Other Construction, Development and Land 162 - 54 216 76,453 76,669 Commercial Real Estate 834 - - 834 167,811 168,645 Commercial Business - - - - 68,212 68,212 Consumer and Other 302 51 - 353 56,020 56,373 Total $ 3,798 $ 456 $ 536 $ 4,790 $ 617,624 $ 622,414 Occasionally, the Company modifies loans to borrowers in financial distress. During the year ended December 31, 2023, no material loans to borrowers experiencing financial distress were modified. There were no loans to borrowers experiencing financial distress that were modified during the previous 12 months and which subsequently defaulted during the year ended December 31, 2023. There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of December 31, 2023. F- 29 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Credit Quality Indicators 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. F- 30 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2023 and gross write-offs for the year then ended are as follows: Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Total (In thousands) 1-4 Family Residential Mortgage Pass $ 34,344 $ 31,551 $ 25,846 $ 6,913 $ 9,525 $ 23,628 $ - $ 131,807 Special Mention - - - - - 144 - 144 Substandard - - - 75 265 155 - 495 Doubtful - 48 192 78 - 837 - 1,155 $ 34,344 $ 31,599 $ 26,038 $ 7,066 $ 9,790 $ 24,764 $ - $ 133,601 Current period gross write-offs $ - $ - $ 2 $ - $ - $ 29 $ - $ 31 Home Equity and Second Mortgage Pass $ 5,267 $ 4,380 $ 529 $ 232 $ 163 $ 327 $ 51,794 $ 62,692 Special Mention - - - - - - 61 61 Substandard - - - - - - 94 94 Doubtful - - - - 264 190 - 454 $ 5,267 $ 4,380 $ 529 $ 232 $ 427 $ 517 $ 51,949 $ 63,301 Current period gross write-offs $ - $ - $ - $ - $ - $ - $ 15 $ 15 Multifamily Residential Pass $ 3,374 $ 10,495 $ 9,534 $ 7,943 $ 4,137 $ 4,463 $ - $ 39,946 Special Mention - - - - - - - - Substandard - - - - - - - - Doubtful - - - - - - - - $ 3,374 $ 10,495 $ 9,534 $ 7,943 $ 4,137 $ 4,463 $ - $ 39,946 Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - F- 31 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Total (In thousands) 1-4 Family Residential Construction Pass $ 9,193 $ 4,180 $ 831 $ 1,119 $ - $ 257 $ - $ 15,580 Special Mention - - - - - - - - Substandard - - - - - - - - Doubtful - - 87 - - - - 87 $ 9,193 $ 4,180 $ 918 $ 1,119 $ - $ 257 $ - $ 15,667 Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - Other Construction, Development and Land Pass $ 26,717 $ 35,673 $ 7,495 $ 2,655 $ 1,231 $ 2,795 $ - $ 76,566 Special Mention - - - - - 49 - 49 Substandard - - - - - - - - Doubtful - - - - - 54 - 54 $ 26,717 $ 35,673 $ 7,495 $ 2,655 $ 1,231 $ 2,898 $ - $ 76,669 Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - Commercial Real Estate Pass $ 14,818 $ 40,675 $ 29,656 $ 19,589 $ 18,231 $ 38,818 $ 1,755 $ 163,542 Special Mention 823 - 573 1,622 417 62 550 4,047 Substandard - - - 231 - 825 - 1,056 Doubtful - - - - - - - - $ 15,641 $ 40,675 $ 30,229 $ 21,442 $ 18,648 $ 39,705 $ 2,305 $ 168,645 Current period gross write-offs $ - $ - $ - $ - $ - $ - $ - $ - Commercial Business Pass $ 14,717 $ 12,603 $ 11,049 $ 5,706 $ 5,312 $ 3,646 $ 12,384 $ 65,417 Special Mention 208 2,097 106 48 160 138 2,757 Substandard - - - - 38 - - 38 Doubtful - - - - - - - - $ 14,925 $ 14,700 $ 11,155 $ 5,754 $ 5,510 $ 3,646 $ 12,522 $ 68,212 Current period gross write-offs $ - $ 155 $ 2 $ 26 $ - $ 6 $ 16 $ 205 F- 32 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Total (In thousands) Consumer and Other Pass $ 23,335 $ 13,906 $ 7,662 $ 2,604 $ 846 $ 5,446 $ 2,484 $ 56,283 Special Mention - - - - - - - - Substandard - - - - - - 90 90 Doubtful - - - - - - - - $ 23,335 $ 13,906 $ 7,662 $ 2,604 $ 846 $ 5,446 $ 2,574 $ 56,373 Current period gross write-offs $ 16 $ 90 $ 107 $ 25 $ 24 $ 52 $ 116 $ 430 Total Loans Pass $ 131,765 $ 153,463 $ 92,602 $ 46,761 $ 39,445 $ 79,380 $ 68,417 $ 611,833 Special Mention 1,031 2,097 679 1,670 577 255 749 7,058 Substandard - - - 306 303 980 184 1,773 Doubtful - 48 279 78 264 1,081 - 1,750 $ 132,796 $ 155,608 $ 93,560 $ 48,815 $ 40,589 $ 81,696 $ 69,350 $ 622,414 Current period gross write-offs $ 16 $ 245 $ 111 $ 51 $ 24 $ 87 $ 147 $ 681 F- 33 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) Allowance for Loan Losses Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses using the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods. The following table provides the components of the Company’s recorded investment in loans at December 31, 2022: Home Equity Residential Commercial Commercial and Second Other Real Estate Land Construction Real Estate Business Mortgage Consumer Total (In thousands) Principal loan balance $ 155,334 $ 21,860 $ 42,271 $ 161,425 $ 60,817 $ 57,781 $ 64,029 $ 563,517 Accrued interest receivable 493 123 105 343 170 348 236 1,818 Net deferred loan origination fees and costs 111 14 ( 12 ) ( 93 ) ( 11 ) 1,204 - 1,213 Recorded investment in loans $ 155,938 $ 21,997 $ 42,364 $ 161,675 $ 60,976 $ 59,333 $ 64,265 $ 566,548 F- 34 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended December 31, 2022 is as follows: Home Equity Residential Commercial Commercial and Second Other Real Estate Land Construction Real Estate Business Mortgage Consumer Total (In thousands) Allowance for Loan Losses: Beginning balance $ 1,174 $ 234 $ 403 $ 1,884 $ 873 $ 527 $ 988 $ 6,083 Provisions 247 31 123 147 173 1 228 950 Charge-offs ( 48 ) - - - ( 9 ) - ( 448 ) ( 505 ) Recoveries 10 - - - 9 2 223 244 Ending balance $ 1,383 $ 265 $ 526 $ 2,031 $ 1,046 $ 530 $ 991 $ 6,772 Ending allowance balance attributable to loans: Individually evaluated for impairment $ - $ - $ - $ - $ 155 $ - $ - $ 155 Collectively evaluated for impairment 1,383 265 526 2,031 891 530 991 6,617 Acquired with deteriorated credit quality - - - - - - - - Ending balance $ 1,383 $ 265 $ 526 $ 2,031 $ 1,046 $ 530 $ 991 $ 6,772 Recorded Investment in Loans: Individually evaluated for impairment $ 854 $ 51 $ - $ 463 $ 195 $ 372 $ - $ 1,935 Collectively evaluated for impairment 154,798 21,946 42,364 161,212 60,781 58,961 64,265 564,327 Acquired with deteriorated credit quality 286 - - - - - - 286 Ending balance $ 155,938 $ 21,997 $ 42,364 $ 161,675 $ 60,976 $ 59,333 $ 64,265 $ 566,548 F- 35 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) An analysis of the allowance for loan losses for the year ended December 31, 2021 is as follows: Home Equity Residential Commercial Commercial and Second Other Real Estate Land Construction Real Estate Business Mortgage Consumer Total (In thousands) Allowance for Loan Losses: Beginning balance $ 1,239 $ 209 $ 292 $ 2,358 $ 843 $ 617 $ 1,067 $ 6,625 Provisions ( 35 ) 34 111 ( 474 ) 20 ( 88 ) 107 ( 325 ) Charge-offs ( 35 ) ( 9 ) - - - ( 10 ) ( 400 ) ( 454 ) Recoveries 5 - - - 10 8 214 237 Ending balance $ 1,174 $ 234 $ 403 $ 1,884 $ 873 $ 527 $ 988 $ 6,083 F- 36 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) The following table summarizes the Company’s impaired loans as of and for the year ended December 31, 2022. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2022. Unpaid Average Interest Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized (In thousands) Loans with no related allowance recorded: Residential $ 854 $ 996 $ - $ 893 $ 12 Land 51 51 - 71 - Construction - - - - - Commercial real estate 463 484 - 582 25 Commercial business 40 40 - 137 8 Home equity and second mortgage 372 389 - 155 - Other consumer - - - - - $ 1,780 $ 1,960 $ - $ 1,838 $ 45 Loans with an allowance recorded: Residential $ - $ - $ - $ 11 $ - Land - - - - - Construction - - - - - Commercial real estate - - - - - Commercial business 155 155 155 31 - Home equity and second mortgage - - - 172 - Other consumer - - - - - $ 155 $ 155 $ 155 $ 214 $ - Total: Residential $ 854 $ 996 $ - $ 904 $ 12 Land 51 51 - 71 - Construction - - - - - Commercial real estate 463 484 - 582 25 Commercial business 195 195 155 168 8 Home equity and second mortgage 372 389 - 327 - Other consumer - - - - - $ 1,935 $ 2,115 $ 155 $ 2,052 $ 45 F- 37 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) The following table summarizes the Company’s impaired loans for the year ended December 31, 2021. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2021. Average Interest Recorded Income Investment Recognized (In thousands) Loans with no related allowance recorded: Residential $ 1,529 $ 21 Land 100 - Construction - - Commercial real estate 740 34 Commercial business 191 8 Home equity and second mortgage 111 2 Other consumer - - $ 2,671 $ 65 Loans with an allowance recorded: Residential $ - $ - Land 10 - Construction - - Commercial real estate - - Commercial business - - Home equity and second mortgage 231 - Other consumer - - $ 241 $ - Total: Residential $ 1,529 $ 21 Land 110 - Construction - - Commercial real estate 740 34 Commercial business 191 8 Home equity and second mortgage 342 2 Other consumer - - $ 2,912 $ 65 F- 38 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - 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 December 31, 2022: Loans 90+ Days Total Nonaccrual Past Due Nonperforming Loans Still Accruing Loans (In thousands) Residential $ 744 $ 83 $ 827 Land 51 - 51 Construction - - - Commercial real estate 81 - 81 Commercial business 155 - 155 Home equity and second mortgage 372 - 372 Other consumer - 4 4 Total $ 1,403 $ 87 $ 1,490 The following table presents the aging of the recorded investment in loans at December 31, 2022: 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 $ 2,229 $ 226 $ 543 $ 2,998 $ 152,654 $ 286 $ 155,938 Land 119 - 51 170 21,827 - 21,997 Construction - - - - 42,364 - 42,364 Commercial real estate - - - - 161,675 - 161,675 Commercial business - - 155 155 60,821 - 60,976 Home equity and second mortgage 206 278 93 577 58,756 - 59,333 Other consumer 211 72 4 287 63,978 - 64,265 Total $ 2,765 $ 576 $ 846 $ 4,187 $ 562,075 $ 286 $ 566,548 F- 39 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) The following table presents the recorded investment in loans by risk category at December 31, 2022: Home Equity Residential Commercial Commercial and Second Other Real Estate Land Construction Real Estate Business Mortgage Consumer Total (In thousands) Pass $ 154,429 $ 21,827 $ 42,364 $ 159,842 $ 60,261 $ 58,937 $ 64,149 $ 561,809 Special Mention - 60 - 679 388 - 116 1,243 Substandard 765 59 - 1,073 172 24 - 2,093 Doubtful 744 51 - 81 155 372 - 1,403 Loss - - - - - - - - Total $ 155,938 $ 21,997 $ 42,364 $ 161,675 $ 60,976 $ 59,333 $ 64,265 $ 566,548 Troubled Debt Restructurings The following table summarizes the Company’s TDRs by accrual status as of December 31, 2022: Related Allowance Accruing Nonaccrual Total for Loan Losses (In thousands) Troubled debt restructurings: Residential real estate $ 108 $ 16 $ 124 $ - Commercial real estate 381 - 381 - Commercial business 40 - 40 - Home equity and second mortgage - 278 278 - Total $ 529 $ 294 $ 823 $ - At December 31, 2022, there were no commitments to lend additional funds to debtors whose loan terms had been modified in a TDR. F- 40 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 4 - continued) There were no TDRs that were restructured during the years ended December 31, 2022 and 2021. There were no principal charge-offs recorded as a result of TDRs during the years ended December 31, 2022 and 2021. The Company had no payment defaults (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) for TDRs modified within the previous 12 months during the year ended December 31, 2022. During the year ended December 31, 2021, there was one second mortgage loan TDR modified within the previous 12 months with a balance of $ 290,000 that was moved to nonaccrual status. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance may be increased or charge-offs may be taken to reduce the carrying amount of the loan. As a result of the payment default described above, a specific reserve of $ 7,000 was established during the year ended December 31, 2021. The current amortized cost of the second mortgage described above is $ 264,000 and there is no specific reserve related to the loan at December 31, 2023. The Company did not recognize any provisions for loan losses or net charge-offs as a result of defaulted TDRs for the year ended December 31, 2022. Purchased Credit Deteriorated ( “ PCD ” ) Loans The Company has purchased groups of loans, some of which have experienced more than insignificant credit deterioration since origination. An ACL for PCD loans is determined using the same methodology as other loans held for investment. Upon adoption of ASC 326, the Company elected to maintain pools of loans that were previously accounted for as purchased credit impairment (“PCI”) loans under ASC 310 - 30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off or sold. Upon adoption of ASC 326, the ACL was determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis will be amortized into interest income over the remaining life of the pool. Changes to the ACL after adoption are recorded through the provision for credit losses. The carrying amount of PCD loans at December 31, 2023 and 2022 was $ 234,000 and $ 244,000 , respectively. There was no ACL related to PCD loans at December 31, 2023 and 2022. ACL on Off-Balance-Sheet Credit Exposures The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company recorded an ACL for unfunded commitments of $ 131,000 in conjunction with the Company’s adoption of ASU 2016 - 13 on January 1, 2023. The ACL for off-balance-sheet credit exposures is presented in accrued expenses and other liabilities on the consolidated balance sheets. Changes in the ACL for off-balance-sheet credit exposures are reflected in the provision for credit losses on the consolidated statements of income. There were no changes to the ACL for off-balance-sheet credit exposures during the year ended December 31, 2023. F- 41 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 5 ) PREMISES AND EQUIPMENT Premises and equipment as of December 31, 2023 and 2022 consisted of the following: (In thousands) 2023 2022 Land and land improvements $ 5,219 $ 5,219 Leasehold improvements 134 134 Office buildings 17,015 16,911 Furniture, fixtures and equipment 6,906 6,757 29,274 29,021 Less accumulated depreciation 14,861 14,353 Totals $ 14,413 $ 14,668 Depreciation expense was $ 882,000 , $ 924,000 and $ 996,000 for the years ended December 31, 2023, 2022 and 2021, respectively. ( 6 ) FORECLOSED REAL ESTATE Foreclosed real estate activity was as follows for the years ended December 31, 2023, 2022 and 2021: (In thousands) 2023 2022 2021 Beginning balance $ - $ 36 $ - Transfers from loans to foreclosed real estate 64 - 126 Direct write-downs - - ( 5 ) Sales ( 64 ) ( 36 ) ( 85 ) Capitalized expenses and other adjustments - - - Ending balance $ - $ - $ 36 At December 31, 2023 and 2022, foreclosed real estate did not include any residential real estate properties where physical possession has been obtained. At December 31, 2023 and 2022, the amortized cost of consumer mortgage loans secured by residential real estate properties where formal foreclosure procedures are in process was $ 1,000 and $ 104,000 , respectively. F- 42 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 7 ) GOODWILL AND OTHER INTANGIBLES The Company acquired goodwill of $ 1.1 million in the acquisition of Peoples Bancorp, Inc. of Bullitt County and Peoples during 2015 in addition to acquiring goodwill of $ 5.4 million in the acquisition of Hometown Bancshares, Inc. (“Hometown”) during 2003. Goodwill is evaluated for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amount is greater than its fair value. No impairment of goodwill was recognized during 2023, 2022 or 2021. The Company acquired a core deposit intangible of $ 1.4 million in the acquisition of Peoples. All of the Company’s previously acquired core deposit intangibles had been fully amortized prior to 2015. Core deposit intangible amortization expense totaled $ 147,000 each year for 2023, 2022, and 2021. Core deposit intangibles subject to amortization as of December 31, 2023 and 2022 consisted of the following: (In thousands) 2023 2022 Core deposit intangible acquired in Peoples acquisition $ 1,418 $ 1,418 Less accumulated amortization 1,186 1,039 $ 232 $ 379 Estimated amortization expense for the core deposit intangible for each of the ensuing five years (as applicable) and in the aggregate is as follows: Years ending December 31: (In thousands) 2024 $ 147 2025 85 Total $ 232 ( 8 ) DEPOSITS Deposits at December 31, 2023 and 2022 consisted of the following: (In thousands) 2023 2022 Noninterest-bearing demand deposits $ 205,535 $ 254,842 NOW accounts 391,232 394,425 Savings accounts 237,542 279,937 Money market accounts 65,315 81,336 Time deposits 125,587 49,856 Total deposits $ 1,025,211 $ 1,060,396 F- 43 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 8 - continued) The aggregate amount of time deposit accounts with balances that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000 was approximately $ 32.4 million and $ 5.3 million at December 31, 2023 and 2022, respectively. At December 31, 2023, scheduled maturities of time deposits were as follows: Year ending December 31: (In thousands) 2024 $ 110,686 2025 7,711 2026 4,756 2027 1,691 2028 743 Total $ 125,587 The Bank held deposits of approximately $ 10.1 million and $ 12.5 million for related parties at December 31, 2023 and 2022, respectively. ( 9 ) LINES OF CREDIT The Bank has an unsecured federal funds purchased line of credit through Independent Correspondent Bankers’ Bank (formerly The Bankers’ Bank of Kentucky) with a maximum borrowing amount of $ 5.0 million. At December 31, 2023 and 2022, the Bank had no outstanding federal funds purchased under the line of credit. The Bank also has a $ 2.0 million revolving line of credit with Stock Yards Bank & Trust Company. At December 31, 2023 and 2022, the Bank had no outstanding borrowings under the line of credit. ( 10 ) BORROWED FUNDS At December 31, 2023, the Company had $ 21.5 million in borrowings outstanding under the FRB’s BTFP and no outstanding advances from the FHLB. The Company had no outstanding borrowings at December 31, 2022. The Company had no borrowings outstanding during the years ended December 31, 2022 or 2021. On March 12, 2023, the Federal Reserve created the BTFP to make additional funding available to eligible depository institutions. The BTFP offers loans of up to one year in length to banks, savings associations, credit unions and other depository institutions which pledge collateral, such as U.S. Treasuries, U.S. agency notes and bonds and U.S. agency mortgage-backed securities. The collateral is valued at par, and advances under this program do not include any fees or prepayment penalties. With the introduction of the BTFP, the Company pledged as collateral U.S. agency notes and bonds and borrowed $ 13.0 million from the BTFP at a fixed rate of 4.99 % for a one -year period on May 19, 2023. Upon receipt of this funding from the BTFP, the Company repaid all outstanding advances from the FHLB. In addition, on December 14, 2023 the Company repaid all outstanding borrowings under the BTFP and advances from the FHLB and then borrowed $ 21.5 million under the BTFP at a fixed rate of 4.89 % for a one -year period. At December 31, 2023, the pledged securities had a par value of $ 48.9 million and a carrying value of $ 45.9 million. During the year ended December 31, 2023, the Company utilized a series of short-term fixed-rate bullet and variable rate advances from the FHLB in order to meet daily liquidity requirements and to fund growth in earning assets. The fixed-rate bullet advances had an average term of seven days. F- 44 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 10 - continued) The following table sets forth information on the short-term FHLB advances and BTFP borrowings during the year ended December 31, 2023: (Dollars in thousands) FHLB variable-rate advances Maximum balance at any month end $ 10,000 Average balance 1,279 Period end balance - Weighted average interest rate (annualized): At end of period 0.00 % During the period 5.79 % FHLB fixed-rate bullet advances Maximum balance at any month end $ 22,500 Average balance 4,804 Period end balance - Weighted average interest rate (annualized): At end of period 0.00 % During the period 5.54 % BTFP borrowings: Maximum balance at any month end $ 21,500 Average balance 8,632 Period end balance 21,500 Weighted average interest rate (annualized): At end of period 4.89 % During the period 5.05 % FHLB advances are secured under a blanket collateral agreement. At December 31, 2023, the carrying value of U.S. Treasury notes and mortgage loans pledged as security for FHLB advances was $ 35.0 million and $ 43.1 million, respectively. ( 11 ) LEASES A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified premises and equipment for a period of time in exchange for consideration. The Company is a lessee in certain leasing agreements, such as for branch office space. During 2020, the Bank extended a noncancelable lease agreement for branch office space which expires in March 2025 with annual lease payments of $ 19,000 . The Bank’s subsidiary companies headquartered in Nevada lease office space under sublease agreements that automatically renew for one year periods each October. The Company has adopted FASB ASC 842 and all subsequent updates. With the adoption of FASB ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability. All of the Company’s leases are classified as operating leases. The Company has elected all applicable practical expedients permitted under the standard, including the option to expense short-term leases with a term of one year or less. F- 45 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 11 - continued) The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheets and was $ 23,000 and $ 42,000 at December 31, 2023 and 2022, respectively. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. The Company recorded a lease liability in other liabilities on the consolidated balance sheets, which had a balance of $ 23,000 and $ 42,000 at December 31, 2023 and 2022, respectively. The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments. Regarding the discount rate, FASB ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease. Certain leases may include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases may include options to purchase the leased property. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants. At December 31, 2023, the Company had not entered into any leases that had yet to commence that conveyed the right to control the use of the property to the Company. Lease expense for the years ended December 31, 2023, 2022 and 2021 was $ 34,000 , $ 32,000 and $ 31,000 , respectively. The components of lease expense for the years ended December 31, 2023, 2022 and 2021 were as follows: (In thousands) 2023 2022 2021 Operating lease cost $ 19 $ 19 $ 19 Short-term lease cost 15 13 12 Totals $ 34 $ 32 $ 31 Future minimum commitments due under operating lease agreements as of December 31, 2023 are as follows, including renewal options that are reasonably certain to be exercised: Year ending December 31: (In thousands) 2024 $ 19 2025 5 Total lease payments 24 Less imputed interest ( 1 ) Total $ 23 F- 46 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 11 - continued) The lease term and discount rate at December 31, 2023 and 2022 were as follows: 2023 2022 Weighted-average remaining lease term (years) 1.25 2.25 Weighted-average discount rate 1.34 % 1.34 % Supplemental cash flow information for the years ended December 31, 2023, 2022 and 2021 related to leases was as follows: 2023 2022 2021 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 19 $ 19 $ 19 The Company also leases space to tenants under various operating leases. Lease income recorded under tenant leases was $ 47,000 , $ 53,000 and $ 39,000 for the years ended December 31, 2023, 2022 and 2021, respectively. Future minimum lease payments to be received under tenant leases with initial or remaining terms in excess of one year total $ 38,000 , $ 20,000 and $ 7,000 for the years ended December 31, 2024, 2025, and 2026, respectively. ( 12 ) INCOME TAXES The Company and its corporate subsidiaries file consolidated tax returns. The components of consolidated income tax expense for the years ended December 31, 2023, 2022 and 2021 were as follows: (In thousands) 2023 2022 2021 Current $ 2,946 $ 2,438 $ 2,371 Deferred ( 698 ) ( 118 ) ( 131 ) Totals $ 2,248 $ 2,320 $ 2,240 The reconciliation of income tax expense with the amount which would have been provided at the federal statutory rate of 21% for the years ended December 31, 2023, 2022, and 2021 follows: (In thousands) 2023 2022 2021 Provision at federal statutory tax rate $ 3,161 $ 2,989 $ 2,872 State income tax-net of federal tax benefit 178 301 266 Tax-exempt interest income ( 733 ) ( 709 ) ( 608 ) Bank-owned life insurance income ( 43 ) ( 42 ) ( 46 ) Captive insurance net premiums ( 126 ) ( 169 ) ( 200 ) Investment in tax credit entities ( 228 ) ( 63 ) ( 58 ) Other 39 13 14 Totals $ 2,248 $ 2,320 $ 2,240 Effective tax rate 14.9 % 16.3 % 16.4 % F- 47 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 12 - continued) Significant components of the deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows: (In thousands) 2023 2022 Deferred tax assets (liabilities): Deferred compensation plans $ 61 $ 73 Unrealized loss on securities available for sale 7,247 10,905 ACL - loans 1,845 1,600 ACL - unfunded commitments 31 - Unrealized loss on equity securities 160 112 Restricted stock 26 41 Interest on nonaccrual loans 128 140 Deferred income 160 221 State tax credit carryforwards 381 - Other 7 9 Deferred tax assets 10,046 13,101 Depreciation ( 921 ) ( 927 ) Deferred loan fees and costs ( 236 ) ( 308 ) FHLB stock dividends ( 37 ) ( 37 ) Prepaid expenses ( 246 ) ( 407 ) Acquisition purchase accounting adjustments ( 270 ) ( 317 ) Other ( 58 ) ( 30 ) Deferred tax liabilities ( 1,768 ) ( 2,026 ) Net deferred tax asset $ 8,278 $ 11,075 At December 31, 2023, the Company had state tax credit carryforwards of $ 381,000 that may be carried forward nine years. At December 31, 2023 and 2022, the Company had no liability for unrecognized income tax benefits related to uncertain tax positions and does not anticipate any increase in the liability for unrecognized tax benefits during the next twelve months. The Company believes that its income tax positions would be sustained upon examination and does not anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana and Kentucky state income tax returns. Returns filed in these jurisdictions for tax years ended on or after December 31, 2020 are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal, Indiana and Kentucky state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed. Retained earnings of the Bank at December 31, 2023 and 2022 include approximately $ 909,000 for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction of such allocated amounts for purposes other than tax bad debt losses, including redemption of bank stock, excess dividends or loss of “bank” status, would create income for tax purposes only, subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $ 191,000 at December 31, 2023 and 2022. F- 48 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 13 ) EMPLOYEE BENEFIT PLANS Defined Contribution Plan: The Bank has a qualified contributory defined contribution plan available to all eligible employees. The plan allows participating employees to make tax-deferred contributions under Internal Revenue Code Section 401 (k). The Bank contributed $ 683,000 , $ 643,000 , and $ 652,000 to the plan for the years ended December 31, 2023, 2022 and 2021, respectively. Employee Stock Ownership Plan: On December 31, 1998, the Bank established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The Bank accounts for the ESOP in accordance with FASB ASC 718 - 40, Employee Stock Ownership Plans . The ESOP trust acquired 61,501 shares of Company common stock financed by a loan with the Company with a ten year term. The employer loan and the related interest income are not recognized in the consolidated financial statements as the debt is serviced from Bank contributions. Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts. Dividends payable on unallocated shares are not considered dividends for financial reporting purposes. Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future year’s principal and interest to be paid on the employer loan. The employer loan was fully paid in 2008 and all shares of the Company common stock have been allocated to participant accounts. Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity. No compensation expense was recognized for the years ended December 31, 2023, 2022 and 2021 as all shares were allocated during 2008. At December 31, 2023 and 2022, the ESOP trust held 48,435 and 49,995 shares of Company stock, respectively, including shares acquired on the open market, all of which had been allocated to participant accounts. The aggregate fair value of shares allocated to ESOP participants was $ 1.4 million and $ 1.2 million at December 31, 2023 and 2022, respectively. ( 14 ) DEFERRED COMPENSATION PLANS The Bank has a deferred compensation plan whereby certain officers will be provided specific amounts of income for a period of fifteen years following normal retirement. The benefits under the agreements are fully vested and were paid in varying amounts through 2022. As part of the acquisition of Peoples in December 2015, the Bank assumed a non-qualified deferred compensation plan for three key employees of Peoples, which provides for specific amounts of income for a period of ten years following retirement. The benefits under the Peoples plan are fully vested and, assuming normal retirement, will be paid in varying amounts through 2026. The Bank is the owner and beneficiary of insurance policies on the lives of these officers which may provide funds for a portion of the required payments. The agreements also provide for payment of benefits in the event of disability, early retirement and termination of employment or death. The Bank accrues the present value of the benefits under these plans so the amounts required will be provided at the normal retirement dates and thereafter. The balance of the accrued benefit for the plans was $ 104,000 and $ 140,000 at December 31, 2023 and 2022, respectively. Deferred compensation expense for the Bank’s deferred compensation plans for employees was $ 5,000 , $ 7,000 and $ 10,000 for the years ended December 31, 2023, 2022 and 2021, respectively. F- 49 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 14 - continued) The Bank also has a directors' deferred compensation plan whereby a director defers into a retirement account a portion of his/her monthly director fees for a specified period to provide a specified amount of income for a period of fifteen years following normal retirement. Assuming normal retirement, the benefits under the plan will be paid in varying amounts through 2041. The agreements also provide for payment of benefits in the event of disability, early retirement and termination of service or death. The Bank accrues the interest cost on the deferred obligation so the amounts required will be provided at the normal retirement dates and thereafter. The balance of the accrued benefit for the director plan was $ 127,000 and $ 129,000 at December 31, 2023 and 2022, respectively. Deferred compensation expense for the director plan was $ 15,000 , $ 16,000 and $ 16,000 for the years ended December 31, 2022, 2021 and 2020, respectively. ( 15 ) STOCK-BASED COMPENSATION PLANS 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. 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. The Company generally issues new shares under the 2019 Plan from its authorized but unissued shares. At December 31, 2023, 162,800 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 December 31, 2023, no stock options had been granted under the Plans. F- 50 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 15 - continued) No restricted stock shares were granted during 2023, 2022 or 2021. 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 cost for an award is reversed in the period the award is forfeited. Compensation expense related to restricted stock recognized for the years ended December 31, 2023, 2022 and 2021 was $ 252,000 , $ 436,000 and $ 487,000 , respectively. The income tax benefit related to stock-based compensation was $ 30,000 , $ 55,000 and $ 97,000 for the years ended December 31, 2023, 2022 and 2021, respectively. A summary of the Company’s nonvested restricted shares activity as of December 31, 2023 and changes during the year then ended is as follows: Weighted Number Average of Grant-Date Shares Fair Value Nonvested at beginning of year 12,550 $ 57.07 Granted - - Vested 6,100 51.12 Forfeited 850 56.76 Nonvested at end of year 5,600 $ 63.60 There were 6,100 , 8,950 and 10,300 restricted shares vested during the years ended December 31, 2023, 2022 and 2021, respectively. The total fair value of restricted shares that vested during the years ended December 31, 2023, 2022 and 2021 was $ 188,000 , $ 260,000 and $ 448,000 , respectively. At December 31, 2023, unrecognized compensation expense related to nonvested restricted shares was $ 249,000 . The compensation expense is expected to be recognized over a weighted average period of 1.4 years. ( 16 ) COMMITMENTS AND CONTINGENCIES In the normal course of business, there are outstanding commitments, contingent liabilities and other financial instruments that are not reflected in the consolidated financial statements. These include commitments to extend credit and standby letters of credit, which are some of the instruments used by the Company to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. F- 51 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 16 - continued) The following is a summary of the commitments to extend credit at December 31, 2023 and 2022: (In thousands) 2023 2022 Loan commitments: Fixed rate $ 666 $ 6,509 Adjustable rate 20,684 22,681 Standby letters of credit 1,894 484 Undisbursed commercial and personal lines of credit 40,187 41,833 Undisbursed portion of construction loans in process 40,879 44,574 Undisbursed portion of home equity lines of credit 77,376 77,118 Total commitments $ 181,686 $ 193,199 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Certain commitments have fixed expiration dates, or other termination clauses, and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management’s credit evaluation. Collateral held varies but may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; accounts receivable; inventory; property and equipment; personal residences; income-producing commercial properties and land under development. Personal guarantees are also obtained to provide added security for certain commitments. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral and obtains personal guarantees supporting those commitments for which collateral or other security is deemed necessary. The Company has not been obligated to perform on any financial guarantees and has incurred no losses on its commitments in 2023 or 2022. ( 17 ) DIVIDEND RESTRICTION As an Indiana corporation, the Company is subject to Indiana law with respect to the payment of dividends. Under Indiana law, the Company may pay dividends so long as it is able to pay its debts as they become due in the usual course of business and its assets exceed the sum of its total liabilities, plus the amount that would be needed if the Company were to be dissolved at the time of the dividend to satisfy any rights that are preferential to the rights of the persons receiving the dividend. The ability of the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the Company. F- 52 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 17 - continued) The payment of dividends by the Bank is subject to banking regulations and applicable Indiana state law. The amount of dividends that the Bank may pay to the Company in any calendar year without prior approval from banking regulators cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. The Bank may not declare or pay a cash dividend or repurchase any of its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below regulatory capital requirements imposed by the banking regulators or below the amount of the liquidation account established upon completion of the conversion of the Bank’s former mutual holding company (First Capital, Inc., MHC) from mutual to stock form on December 31, 1998. ( 18 ) REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on January 1, 2015, with all of the requirements being phased in as of January 1, 2019. Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0 % for 2015 to 2.5 % for 2019. The capital conservation buffer was 2.5 % for 2023 and 2022. Beginning in 2020, qualifying community banks with assets of less than $10 billion are eligible to opt in to the Community Bank Leverage Ratio (“CBLR”) framework. The CBLR is the ratio of a bank’s tangible equity capital to average total consolidated assets. A qualifying community bank that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under prompt corrective action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new CBLR at not less than 8% and not more than 10%, and had originally set the minimum ratio at 9%. However, pursuant to the CARES Act and related interim final rules, the minimum CBLR was 8% for calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. A financial institution that falls below the minimum CBLR generally has a two quarter grace period to get back into compliance as long as it maintains a minimum CBLR of 7% for 2020, 7.5% for 2021 and 8% for 2022 and thereafter. A financial institution can elect to be subject to or opt out of the CBLR framework at any time. As a qualified community bank, the Bank has opted into the CBLR framework as of December 31, 2023 and 2022. Management believes that the Bank met all capital adequacy requirements to which it was subject as of December 31, 2023 and 2022. F- 53 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 18 - continued) As of December 31, 2023, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios are presented in the following table. No amounts were deducted from capital for interest-rate risk in either year. Minimum to be Well Capitalized under Prompt Corrective Actual Action Provisions: (Dollars in thousands) Amount Ratio Amount Ratio As of December 31, 2023: Community Bank Leverage Ratio $ 116,765 9.92 % $ 105,891 9.00 % As of December 31, 2022: Community Bank Leverage Ratio $ 107,377 9.18 % $ 105,256 9.00 % ( 19 ) 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. 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. 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 independent 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. 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 below. F- 54 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 19 - continued) The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2023 and 2022. The Company had no liabilities measured at fair value as of December 31, 2023 or 2022. Carrying Value (In thousands) Level 1 Level 2 Level 3 Total December 31, 2023 Assets Measured on a Recurring Basis Securities available for sale: Agency mortgage-backed securities $ - $ 72,044 $ - $ 72,044 Agency CMO - 25,173 - 25,173 Agency notes and bonds - 129,505 - 129,505 Treasury notes and bonds 63,084 - - 63,084 Municipal obligations - 147,465 - 147,465 Total securities available for sale $ 63,084 $ 374,187 $ - $ 437,271 Equity securities $ 1,260 $ - $ - 1,260 Assets Measured on a Nonrecurring Basis Collateral dependent loans: 1-4 Family Residential Mortgage $ - $ - $ 27 $ 27 1-4 Family Residential Construction - - 27 27 Total collateral dependent loans $ - $ - $ 54 $ 54 December 31, 2022 Assets Measured on a Recurring Basis Securities available for sale: Agency mortgage-backed securities $ - $ 83,863 $ - $ 83,863 Agency CMO - 9,353 - 9,353 Agency notes and bonds - 137,981 - 137,981 Treasury notes and bonds 78,732 - - 78,732 Municipal obligations - 150,890 - 150,890 Total securities available for sale $ 78,732 $ 382,087 $ - $ 460,819 Equity securities $ 1,467 $ - $ - $ 1,467 F- 55 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 19 - continued) 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. Collateral Dependent Loans . Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. In accordance with accounting standards, only collateral dependent loans for which a specific ACL has been established require classification in the fair value hierarchy. The fair value of collateral dependent loans is classified as Level 3 in the fair value hierarchy. Collateral dependent loans with specific allocations of ACL are measured at the fair value of the collateral less estimated costs to sell. 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, which are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral. At December 31, 2023, the significant unobservable inputs used in the fair value measurement of collateral dependent 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 23 % to 30 %, with a weighted average discount of 27 %. There were no collateral dependent loans with a specific allocation of the ACL on loans at December 31, 2022. The Company recognized provisions for loan losses of $ 97,000 , $ 148,000 and $ 12,000 for the years ended December 31, 2023, 2022 and 2021, respectively, for collateral dependent loans. 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 estimated based on specific prices of underlying contracts for sales to investors. These measurements are carried at Level 2 in the fair value hierarchy. At December 31, 2023 and 2022, the Company did not have any loans held for sale measured at fair value on a nonrecurring basis. 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 property. At December 31, 2023 and 2022, the Company held no foreclosed real estate. The Company recognized charges of $ 5,000 to write down foreclosed real estate to fair value for the year ended December 31, 2021. There were no charges to write down foreclosed real estate recognized in income for the years ended December 31, 2023 and 2022. F- 56 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 19 - continued) 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 years ended December 31, 2023 and 2022. There were no transfers in or out of the Company’s Level 3 financial assets for the years ended December 31, 2023 and 2022. ( 20 ) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the carrying value and estimated fair value of financial instruments and the level within the fair value hierarchy (see Note 19 ) in which the fair value measurements fall at December 31, 2023 and 2022: Carrying Fair Fair Value Measurements Using (In thousands) Value Value Level 1 Level 2 Level 3 December 31, 2023: Financial assets: Cash and cash equivalents $ 38,670 $ 38,670 $ 38,670 $ - $ - Interest-bearing time deposits 3,920 3,925 - 3,925 - Securities available for sale 437,271 437,271 63,084 374,187 - Securities held to maturity 7,000 4,446 - 4,446 - Loans held for sale 800 811 - 811 - Loans, net 614,409 609,243 - - 609,243 FHLB and other restricted stock 1,836 N/A N/A N/A N/A Accrued interest receivable 4,788 4,788 - 4,788 - Equity securities (included in other assets) 1,260 1,260 1,260 - - Financial liabilities: Deposits 1,025,211 1,023,813 - - 1,023,813 Borrowed funds 21,500 21,470 - 21,470 - Accrued interest payable 1,209 1,209 - 1,209 - December 31, 2022: Financial assets: Cash and cash equivalents $ 66,298 $ 66,298 $ 66,298 $ - $ - Interest-bearing time deposits 3,677 3,638 - 3,638 - Securities available for sale 460,819 460,819 78,732 382,087 - Securities held to maturity 7,000 5,311 - 5,311 - Loans held for sale 793 803 - 803 - Loans, net 557,958 554,634 - - 554,634 FHLB and other restricted stock 1,836 N/A N/A N/A N/A Accrued interest receivable 4,285 4,285 - 4,285 - Equity securities (included in other assets) 1,467 1,467 1,467 - - Financial liabilities: Deposits 1,060,396 1,058,122 - - 1,058,122 Accrued interest payable 123 123 - 123 - The carrying amounts in the preceding table are included in the consolidated balance sheets under the applicable captions. The contractual or notional amounts of financial instruments with off-balance-sheet risk are disclosed in Note 16, and the fair value of these instruments is considered immaterial. F- 57 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 20 - continued) The methods and assumptions used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits and other transactions accounts. The fair value of securities and interest-bearing time deposits in other financial institutions is based on quoted market prices (where available) or values obtained from an independent pricing service. The fair value of loans, excluding loans held for sale, fixed-maturity certificates of deposit and borrowed funds is based on discounted cash flows using current market rates applied to the estimated life and credit risk of the instrument. The fair value of loans held for sale is based on specific prices of underlying contracts for sales to investors. It is not practicable to determine the fair value of FHLB and other restricted stock due to restrictions placed on its transferability. The methods utilized to measure the fair value of financial instruments at December 31, 2023 and 2022 represent an approximation of exit price, but an actual exit price may differ. ( 21 ) REVENUE FROM CONTRACTS WITH CUSTOMERS Substantially all of the Company’s revenue from contracts with customers in the scope of FASB ASC 606 is recognized within noninterest income. The following table presents the Company’s sources of noninterest income and other income within the scope of FASB ASC 606 for the years ended December 31, 2023, 2022 and 2021: (In thousands) 2023 2022 2021 In Scope for ASC 606 Service charges on deposit accounts $ 2,343 $ 2,273 $ 1,874 ATM and debit card fees 4,489 4,345 4,076 Investment advisory income 57 427 377 Other 120 100 119 Revenue from contracts with customers 7,009 7,145 6,446 Out of Scope for ASC 606 Net gains on loans and investments 254 419 2,774 Increase in cash value of life insurance 206 201 219 Other 163 162 112 Other noninterest income 623 782 3,105 Total noninterest income $ 7,632 $ 7,927 $ 9,551 A description of the Company’s revenue streams accounted for under FASB ASC 606 follows: Service Charges on Deposit Accounts : The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. ATM and Debit Card Fees : The Company earns ATM usage fees and interchange fees from debit cardholder transactions conducted through a payment network. ATM fees are recognized at the point in time the transaction occurs. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. F- 58 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 21 - continued) Investment Advisory Income : The Company earns trust, insurance commissions, brokerage commissions and annuities income from its contracts with customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted services and are generally assessed based on the market value of assets under management. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed. Other related fees, which are based on a fixed fee schedule, are recognized when the services are rendered. Other Income : Other income from contracts with customers includes safe deposit box fees and ACH origination fees. This revenue is recognized at the time the transaction is executed or over the period the Company satisfies the performance obligation. ( 22 ) 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 December 31, 2023 and 2022, the balance of the Bank’s investment was $ 1.9 million and $ 2.2 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 December 31, 2023 and 2022 was $ 168,000 and $ 216,000 , 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 2023, 2022 and 2021, the Bank recognized amortization expense of $ 307,000 , $ 355,000 and $ 355,000 , respectively, which was included in income tax expense on the consolidated statements of income. Additionally, during 2023, 2022 and 2021, the Bank recognized tax credits and other tax benefits from its qualified affordable housing project investment of $ 403,000 , $ 421,000 and $ 423,000 , respectively, which was included in income tax expense on the consolidated statements of income. ( 23 ) RENEWABLE ENERGRY TAX CREDIT INVESTMENT On April 21, 2023, the Bank entered into an agreement to invest in investment tax credits generated by a solar energy producing facility through a limited liability company. At December 31, 2023, the balance of the Bank’s investment was $ 306,000 , and is reflected in other assets on the consolidated balance sheets. The Bank had fully funded its commitment in the solar energy tax credit investment at December 31, 2023. In addition, in order to facilitate the loan to be obtained by the entity constructing the qualified solar energy producing facility, the Bank has obtained a $ 2.0 million standby letter of credit through the FHLB for the Bank’s total committed investment. The letter of credit was issued June 2, 2023 and expires April 30, 2024. The investment is accounted for using the proportional amortization method. During 2023, the Bank recognized amortization expense of $ 1.7 million, which was included in income tax expense on the consolidated statements of income. Additionally, during 2023, the Bank recognized tax credits and other tax benefits from its solar energy tax credit investment of $ 1.8 million, which was included in income tax expense on the consolidated statements of income. ( 24 ) CAPTIVE SUBSIDIARY As described in Note 1, the Company had a wholly-owned insurance subsidiary providing property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance to nine other third party insurance captives for which insurance may not be currently available or economically feasible in the insurance marketplace. On April 10, 2023, the IRS issued IR- 2023 - 74 and proposed regulations that may result in the Captive being considered a listed transaction. The proposed regulations include the possibility of material tax expense to the consolidated group if finalized in their current form. However, the final regulations have not been published and as such management cannot reasonably estimate or determine the potential tax liability as of December 31, 2023. The Captive was formally dissolved with all remaining assets transferred to the Company on December 31, 2023. F- 59 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 25 ) PARENT COMPANY CONDENSED FINANCIAL INFORMATION Condensed financial information for the Company (parent company only) follows: Balance Sheets (In thousands) As of December 31, 2023 2022 Assets: Cash and cash equivalents $ 3,798 $ 2,697 Other assets 2,528 2,816 Investment in subsidiaries 99,437 80,425 $ 105,763 $ 85,938 Liabilities and Equity: Accrued expenses $ 530 $ 780 Stockholders' equity 105,233 85,158 $ 105,763 $ 85,938 Statements of Income (In thousands) Years Ended December 31, 2023 2022 2021 Dividend income from subsidiaries $ 3,745 $ 4,475 $ 2,685 Other income 115 105 69 Income (loss) on equity securities ( 207 ) ( 414 ) 328 Other operating expenses ( 681 ) ( 825 ) ( 835 ) Income before income taxes and equity in undistributed net income of shareholders 2,972 3,341 2,247 Income tax benefit 164 249 106 Income before equity in undistributed net income of subsidiaries 3,136 3,590 2,353 Equity in undistributed net income of subsidiaries 9,654 8,312 9,071 Net Income $ 12,790 $ 11,902 $ 11,424 Comprehensive Income (Loss) $ 24,498 $ ( 25,573 ) $ 6,336 F- 60 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 25 - continued) Statements of Cash Flows (In thousands) Years Ended December 31, 2023 2022 2021 Operating Activities: Net income $ 12,790 $ 11,902 $ 11,424 Adjustments to reconcile net income to cash provided by operating activities: Equity in undistributed net income of subsidiaries ( 9,654 ) ( 8,312 ) ( 9,071 ) Dissolution of Captive 1,822 - - Stock compensation expense 252 436 487 Unrealized loss (gain) on equity securities 207 414 ( 328 ) Net change in other assets and liabilities 80 ( 53 ) 191 Net cash provided by operating activities 5,497 4,387 2,703 Investing Activities: Investment in technology fund ( 250 ) ( 100 ) ( 120 ) Net cash used in investing activities ( 250 ) ( 100 ) ( 120 ) Financing Activities: Purchase of treasury stock ( 502 ) - ( 40 ) Tax paid on stock award shares for employees ( 23 ) ( 26 ) ( 85 ) Cash dividends paid ( 3,621 ) ( 3,507 ) ( 3,509 ) Net cash used in financing activities ( 4,146 ) ( 3,533 ) ( 3,634 ) Net increase (decrease) in cash 1,101 754 ( 1,051 ) Cash at beginning of year 2,697 1,943 2,994 Cash at end of year $ 3,798 $ 2,697 $ 1,943 ( 26 ) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Years Ended December 31, (In thousands) 2023 2022 2021 Cash payments for: Interest $ 7,931 $ 1,568 $ 1,184 Income taxes (net of refunds received) 1,828 2,327 1,973 Noncash investing activities: Transfers from loans to foreclosed real estate $ 64 $ - $ 126 Proceeds from sales of foreclosed real estate financed through loans - - 35 Vehicle trade-in allowance 22 - - F- 61 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 27 ) SUPPLEMENTAL DISCLOSURE FOR EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, restricted stock and other potentially dilutive securities outstanding. Earnings and dividends per share are restated for stock splits and dividends through the date of issuance of the financial statements. Earnings per share information is presented below for the years ended December 31, 2023, 2022 and 2021. (In thousands, except per share data) Years Ended December 31, 2023 2022 2021 Basic Earnings: Net income attributable to First Capital, Inc. $ 12,790 $ 11,902 $ 11,424 Shares: Weighted average common shares outstanding 3,347,341 3,355,023 3,346,038 Net income attributable to First Capital, Inc. per common share, basic $ 3.82 $ 3.55 $ 3.41 Diluted Earnings: Net income attributable to First Capital, Inc. $ 12,790 $ 11,902 $ 11,424 Shares: Weighted average common shares outstanding 3,347,341 3,355,023 3,346,038 Add: Dilutive effect of restricted stock - - 457 Weighted average common shares outstanding, as adjusted 3,347,341 3,355,023 3,346,495 Net income attributable to First Capital, Inc. per common share, diluted $ 3.82 $ 3.55 $ 3.41 Nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding. Restricted shares totaling 5,600 and 12,550 were excluded from the calculation of diluted net income per share because their effect would be anti-dilutive for the years ended December 31, 2023 and 2022, respectively. No shares were excluded from the calculation of diluted net income per common share because their effect would be anti-dilutive for the year ended December 31, 2021. F- 62 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 28 ) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) First Second Third Fourth Quarter Quarter Quarter Quarter 2023 (In thousands, except per share data) Interest income $ 10,187 $ 10,600 $ 11,179 $ 11,639 Interest expense 996 2,288 2,642 3,091 Net interest income 9,191 8,312 8,537 8,548 Provision for credit losses 193 350 290 308 Net interest income after provision for credit losses 8,998 7,962 8,247 8,240 Noninterest income 1,991 1,863 1,947 1,831 Noninterest expenses 6,401 6,666 6,481 6,480 Income before income taxes 4,588 3,159 3,713 3,591 Income tax expense 769 429 572 478 Net income 3,819 2,730 3,141 3,113 Less: net income attributable to noncontrolling interest in subsidiary 3 4 3 3 Net income attributable to First Capital, Inc. $ 3,816 $ 2,726 $ 3,138 $ 3,110 Earnings per common share attributable to First Capital Inc.: Basic $ 1.14 $ 0.82 $ 0.94 $ 0.93 Diluted $ 1.14 $ 0.82 $ 0.94 $ 0.93 2022 Interest income $ 7,205 $ 7,898 $ 9,048 $ 9,789 Interest expense 253 267 390 684 Net interest income 6,952 7,631 8,658 9,105 Provision for loan losses 175 200 175 400 Net interest income after provision for loan losses 6,777 7,431 8,483 8,705 Noninterest income 2,147 1,965 1,873 1,942 Noninterest expenses 5,994 6,235 6,559 6,300 Income before income taxes 2,930 3,161 3,797 4,347 Income tax expense 400 447 669 804 Net income 2,530 2,714 3,128 3,543 Less: net income attributable to noncontrolling interest in subsidiary 3 4 3 3 Net income attributable to First Capital, Inc. $ 2,527 $ 2,710 $ 3,125 $ 3,540 Earnings per common share attributable to First Capital Inc.: Basic $ 0.75 $ 0.81 $ 0.93 $ 1.06 Diluted $ 0.75 $ 0.81 $ 0.93 $ 1.06 F- 63 FIRST CAPITAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ( 28 - continued) First Second Third Fourth Quarter Quarter Quarter Quarter 2021 (In thousands, except per share data) Interest income $ 7,292 $ 7,133 $ 7,745 $ 7,290 Interest expense 288 289 278 273 Net interest income 7,004 6,844 7,467 7,017 Provision (credit) for loan losses 75 - - ( 400 ) Net interest income after provision (credit) for loan losses 6,929 6,844 7,467 7,417 Noninterest income 2,438 2,552 2,270 2,291 Noninterest expenses 5,807 6,165 6,202 6,357 Income before income taxes 3,560 3,231 3,535 3,351 Income tax expense 618 497 596 529 Net income 2,942 2,734 2,939 2,822 Less: net income attributable to noncontrolling interest in subsidiary 3 4 3 3 Net income attributable to First Capital, Inc. $ 2,939 $ 2,730 $ 2,936 $ 2,819 Earnings per common share attributable to First Capital Inc.: Basic $ 0.88 $ 0.82 $ 0.88 $ 0.83 Diluted $ 0.88 $ 0.82 $ 0.88 $ 0.83 F- 64 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST CAPITAL, INC. Date: March 29, 2024 /s/ Michael C. Frederick Michael C. Frederick President, Chief Executive Officer and a Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date /s/ Michael C. Frederick President, Chief Executive Officer and Director March 29, 2024 Michael C. Frederick (principal executive officer) /s/ Kathryn W. Ernstberger Chairwoman March 29, 2024 Kathryn W. Ernstberger /s/ Joshua P. Stevens Executive Vice President, Chief Financial Officer and Treasurer March 29, 2024 Joshua P. Stevens (principal accounting and financial officer) /s/ William W. Harrod Director March 29, 2024 William W. Harrod /s/ Michael L. Shireman Director March 29, 2024 Michael L. Shireman /s/ Mark D. Shireman Director March 29, 2024 Mark D. Shireman /s/ William I. Orwick, Sr. Director March 29, 2024 William I. Orwick, Sr. /s/ Carolyn E. Wallace Director March 29, 2024 Carolyn E. Wallace /s/ Pamela G. Kraft Director March 29, 2024 Pamela G. Kraft /s/ Christopher L. Byrd Director March 29, 2024 Christopher L. Byrd F-65 /s/ Dana L. Huber Director March 29, 2024 Dana L. Huber /s/ Lou Ann Moore Director March 29, 2024 Lou Ann Moore /s/ Robert C. Guilfoyle Director March 29, 2024 Robert C. Guilfoyle /s/ Jill S. Saegesser Director March 29, 2024 Jill S. Saegesser F-66