10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________________  to__________________

Commission File No. 0-25023

First Capital, Inc.

(Exact name of registrant as specified in its charter)

Indiana	35-2056949
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
220 Federal Drive NW, Corydon, Indiana 47112	1-812-738-2198
(Address of principal executive offices, zip code, telephone number)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X      No ____

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

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

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

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

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

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

FIRST CAPITAL, INC.

INDEX

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

-2-

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2020			2019
	(In thousands)
ASSETS
Cash and due from banks	$	19,470		$	18,922
Interest bearing deposits with banks		1,388			3,412
Federal funds sold		38,864			29,026
Total cash and cash equivalents		59,722			51,360
Interest-bearing time deposits		6,490			6,490
Securities available for sale, at fair value		253,182			254,562
Loans, net		465,292			466,494
Loans held for sale		3,085			4,176
Federal Home Loan Bank and other stock, at cost		1,988			1,988
Foreclosed real estate		-			170
Premises and equipment		16,343			16,414
Accrued interest receivable		2,863			3,076
Cash value of life insurance		8,316			8,269
Goodwill		6,472			6,472
Core deposit intangible		782			819
Other assets		6,640			7,206
Total Assets	$	831,175		$	827,496
LIABILITIES
Deposits:
Noninterest-bearing	$	146,552		$	146,097
Interest-bearing		576,066			576,080
Total deposits		722,618			722,177
Accrued interest payable		219			210
Accrued expenses and other liabilities		5,430			6,161
Total liabilities		728,267			728,548
EQUITY
Preferred stock of $.01 par value per share Authorized 1,000,000 shares; none issued		-			-
Common stock of $.01 par value per share Authorized 7,500,000 shares; issued 3,805,533 shares (3,791,283 in 2019); outstanding 3,377,882 shares (3,363,632 in 2019)		38			38
Additional paid-in capital		41,684			40,723
Retained earnings-substantially restricted		66,549			65,266
Unearned stock compensation		(1,808	)		(940	)
Accumulated other comprehensive income		4,723			2,142
Less treasury stock, at cost - 427,651 shares		(8,393	)		(8,393	)
Total First Capital, Inc. stockholders' equity		102,793			98,836
Noncontrolling interest in subsidiary		115			112
Total equity		102,908			98,948
Total Liabilities and Equity	$	831,175		$	827,496

See accompanying notes to consolidated financial statements.      

-3-

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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

See accompanying notes to consolidated financial statements.        

-4-

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

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

See accompanying notes to consolidated financial statements.

-5-

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

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

See accompanying notes to consolidated financial statements.              

-6-

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

See accompanying notes to consolidated financial statements.    

-7-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Presentation of Interim Information

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

In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of March 31, 2020, and the results of operations for the three months ended March 31, 2020 and 2019 and the cash flows for the three months ended March 31, 2020 and 2019. All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are not necessarily indicative of results for a full year or any other period.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and are presented as permitted by the instructions to Form 10-Q. Accordingly, they do not contain certain information included in the Company’s annual audited consolidated financial statements and related footnotes for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K.

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

COVID-19

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

-8-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1 – continued)

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

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

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

-9-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Investment Securities

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

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

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

-10-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2 – continued)

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

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

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

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

-11-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2 – continued)

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

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

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

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

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

-12-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2 – continued)

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

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

Equity Securities

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

3. Loans and Allowance for Loan Losses

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

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

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

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

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

-13-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

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

-14-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

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

-15-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

-16-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-17-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-18-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

-19-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

-20-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-21-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-22-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-23-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

-24-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

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

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

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

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

-25-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

-26-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

Purchased Credit Impaired (PCI) Loans

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

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(3 – continued)

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

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

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

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

4. Qualified Affordable Housing Project Investment

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

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

-29-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Supplemental Disclosure for Earnings Per Share

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

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

6. Stock-Based Compensation Plan

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6 – continued)

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

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

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

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

-31-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6 – continued)

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

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

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

7. Supplemental Disclosures of Cash Flow Information

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

8. Fair Value Measurements

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8 – continued)

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8 – continued)

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

-34-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8 – continued)

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

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

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8 – continued)

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

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

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

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

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

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FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8 – continued)

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

	Carrying		Fair		Fair Value Measurements Using
(In thousands)	Value		Value		Level 1		Level 2		Level 3
March 31, 2020
Financial assets:
Cash and cash equivalents	$	59,722	$	59,722	$	59,722	$	-	$	-
Interest-bearing time deposits		6,490		6,835		-		6,835		-
Securities available for sale		253,182		253,182		-		253,182		-
Loans held for sale		3,085		3,142		-		3,142		-
Loans, net		465,292		476,293		-		-		476,293
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		2,863		2,863		-		2,863		-
Equity securities (included in other assets)		1,352		1,352		1,352		-		-
Financial liabilities:
Deposits		722,618		723,217		-		-		723,217
Accrued interest payable		219		219		-		219		-
December 31, 2019:
Financial assets:
Cash and cash equivalents	$	51,360	$	51,360	$	51,360	$	-	$	-
Interest-bearing time deposits		6,490		6,654		-		6,654		-
Securities available for sale		254,562		254,562		-		254,562		-
Loans held for sale		4,176		4,243		-		4,243		-
Loans, net		466,694		482,119		-		-		482,119
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		3,076		3,076		-		3,076		-
Equity securities (included in other assets)		1,746		1,746		1,746		-		-
Financial liabilities:
Deposits		722,177		721,729		-		-		721,729
Accrued interest payable		210		210		-		210		-

-37-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. 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 for the three months ended March 31, 2020 and 2019:

	Three Months Ended
	March 31,
	2020			2019
	(In thousands)
Service charges on deposit accounts	$	506		$	461
ATM and debit card fees		765			647
Investment advisory income		113			98
Other		33			34
Revenue from contracts with customers		1,417			1,240
Net gain (loss) on loans and investments		(35	)		192
Increase in cash value of life insurance		47			48
Other		27			25
Other noninterest income		39			265
Total noninterest income	$	1,456		$	1,505

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.

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.

-38-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(9 – continued)

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.

10. Recent Accounting Pronouncements

The following are summaries of recently issued or adopted accounting pronouncements that impact the accounting and reporting practices of the Company:

In June 2016, the FASB issued Accounting Standards Update (“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. For the Company, the amendments in the update were originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact the guidance will have upon adoption, but management expects its allowance for loan losses to increase through a one-time adjustment to retained earnings. However, until the evaluation is complete, the magnitude of the increase will be unknown. In planning for the implementation of ASU 2016-13, the Company has formed a CECL implementation team consisting of members of senior management that meets on a periodic basis and is currently evaluating software solutions, data requirements and loss methodologies.

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. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is a smaller reporting company as defined by the SEC, and currently does not intend to early adopt CECL.

-39-

FIRST CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(10 – continued)

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and adds certain disclosure requirements for fair value measurements. Among other changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in the update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. The adoption of this update effective January 1, 2020 did not have a material impact on the Company’s consolidated financial position or results of operations.

-40-

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC.

Safe Harbor Statement for Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts nor guarantees of future performance; rather they are statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements can be identified by use of the words “expects,” “believes,” “anticipates,” “intends,” “could,” “should” and similar expressions. Forward-looking statements also include, but are not limited to, statements regarding estimated cost savings, plans and objectives for future operations, and the Company’s business and growth strategies.

Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements being materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, market, economic, operational, liquidity, credit and interest rate risks associated with the Company’s business (including developments and volatility arising from the COVID-19 pandemic),general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; the ability of the Company to execute its business plan; legislative and regulatory changes; the quality and composition of the loan and investment securities portfolio; loan demand; deposit flows; competition; and changes in accounting principles and guidelines. Additional factors that may affect our results are discussed in Part II of this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q and, except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies

During the three months ended March 31, 2020, there was no significant change in the Company’s critical accounting policies or the application of critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

COVID-19 Update

The COVID-19 pandemic has placed significant health, economic and other major hardships throughout the communities we serve, the United States and the entire world. The Company has implemented a number of procedures in response to the pandemic to support the safety and well-being of our employees, customers and shareholders:

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

• Following the guidelines of the Center for Disease Control and local governments, we have updated our branch operating procedures. While our branches remain open, the lobbies have been closed and transactions are being conducted through drive-up windows or by appointment. Currently, we plan to begin reopening lobbies on May 20, 2020. This is subject to change with governor executive orders and bank policies. For employees that continue to work from our offices, we have enhanced daily cleaning of our facilities and have instructed them to maintain appropriate social distancing. We also actively encourage customers to utilize alternative channels such as our online and mobile banking platforms. Our customer service and retail departments remain fully staffed and available to assist customers remotely.

• We hold executive committee meetings frequently throughout each week to address issues as the guidelines related to the pandemic and related programs change rapidly.

• We have expanded our use of technology to allow many of our employees to work safely and productively from home. Most of our normally scheduled meetings, including Board of Director meetings and various committee meetings, are now held virtually instead of in-person.

• The Bank is assisting its customers experiencing COVID-19 related hardships by approving payment extensions and waiving or refunding certain banking fees. As of May 6, 2020, the Bank had approved payment extensions on approximately 11.7% of balances in the loan portfolio, primarily related to commercial real estate lending relationships. These payment extensions are generally for periods of one to three months, but may extend for up to six months.

• The Bank is actively participating in the PPP and had received SBA authorizations totaling approximately $44.6 million for PPP loans to its customers as of May 6, 2020. These loans will be disbursed as soon as administratively feasible during the second quarter of 2020, and approximately $41.9 million had been disbursed as of May 6, 2020.

Management continues to closely monitor the pandemic and will take additional action to respond to the pandemic as the situation continues to evolve.

Financial Condition

Total assets increased $3.7 million from $827.5 million at December 31, 2019 to $831.2 million at March 31, 2020, an increase of 0.4%.

Net loans receivable (excluding loans held for sale) decreased $1.2 million from $466.5 million at December 31, 2019 to $465.3 million at March 31, 2020. Residential mortgage loans, other consumer loans and construction loans decreased $3.9 million, $2.0 million and $1.8 million, respectively, during the three months ended March 31, 2020. Commercial real estate loans increased $7.6 million during the same period.

Securities available for sale decreased $1.4 million from December 31, 2019 to $253.2 million at March 31, 2020. Purchases of $15.4 million of securities classified as available for sale were made during the three months ended March 31, 2020 and consisted primarily of municipal bonds, U.S. government agency notes and bonds and mortgage-backed securities and CMO’s. Principal payments and maturities of available for sale securities totaled $9.9 million and $9.7 million, respectively, during the three months ended March 31, 2020. No securities were sold during the three months ended March 31, 2020.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC.

Cash and cash equivalents increased from $51.4 million at December 31, 2019 to $59.7 million at March 31, 2020, primarily due to excess liquidity from pay downs in loan and investment balances.

Total deposits increased from $722.2 million at December 31, 2019 to $722.6 million at March 31, 2020. Savings accounts and noninterest-bearing checking accounts increased $4.7 million and $455,000, respectively, during the three months ended March 31, 2020 primarily due to new accounts and normal balance fluctuations, while interest bearing checking accounts and time deposits decreased $3.6 million and $1.1 million, respectively, during the period.

Total stockholders' equity attributable to the Company increased from $98.8 million at December 31, 2019 to $102.8 million at March 31, 2020, primarily due to a $2.6 million increase in the net unrealized gain on available for sale securities and a $1.3 million increase in retained net income during the three months ended March 31, 2020. The increase in the net unrealized gain on available for sale securities during the period is primarily due to changes in long-term market interest rates.

Results of Operations

Net income for the three-month periods ended March 31, 2020 and 2019. Net income attributable to the Company was $2.1 million ($0.63 per diluted share) for the three months ended March 31, 2020 compared to $2.1 million ($0.64 per diluted share) for the same time period in 2019. An increase in net interest income after provision for loan losses was offset by a decrease in noninterest income and an increase in noninterest expense.

Net interest income for the three-month periods ended March 31, 2020 and 2019. Net interest income increased $4,000 for the three months ended March 31, 2020 compared to the same period in 2019. An increase in the average balance of interest-earning assets was offset by a decrease in the average tax-equivalent yield of those interest-earning assets.

Total interest income increased $16,000 for the three months ended March 31, 2020 compared to the same period in 2019. For the three months ended March 31, 2020, the average balance of interest-earning assets and their tax-equivalent yield were $761.7 million and 4.10%, respectively. During the same period in 2019, the average balance of those assets was $741.0 million and the tax-equivalent yield was 4.19%. Total interest expense increased $12,000 for the three months ended March 31, 2020 compared to the same period in 2019. The average balance of interest-bearing liabilities increased from $558.6 million for 2019 to $571.2 million for 2020. The average rate paid on interest-bearing liabilities remained unchanged at 0.33% when comparing the two periods.

As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread on a tax-equivalent basis decreased from 3.86% for the three months ended March 31, 2019 to 3.77% for the same period in 2020.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC.

Provision for loan losses. Based on management’s analysis of the allowance for loan losses, the provision for loan losses decreased from $450,000 for the three-month period ended March 31, 2019 to $351,000 for the same period in 2020. During the three-month period ended March 31, 2019, net loans receivable increased $15.5 million compared to a decrease of $1.2 million during the same period in 2020. The Bank recognized net charge-offs of $105,000 for the three months ended March 31, 2020 compared to $176,000 during the same period in 2019. The $351,000 provision for the three months ended March 31, 2020 was made despite decreases in the loan portfolio and net charge-offs for the quarter to reflect changes to qualitative factors within the Bank’s allowance for loan losses calculation related to economic uncertainties surrounding COVID-19.

Provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered adequate by management to provide for probable known and inherent loan losses based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specified impaired loans and economic conditions. Although management uses the best information available, future adjustments to the allowance may be necessary due to changes in economic, operating, regulatory and other conditions that may be beyond the Bank’s control. While the Bank maintains the allowance for loan losses at a level that it considers adequate to provide for estimated losses, there can be no assurance that further additions will not be made to the allowance for loan losses and that actual losses will not exceed the estimated amounts.

The methodology used in determining the allowance for loan losses includes segmenting the loan portfolio by identifying risk characteristics common to groups of loans, determining and measuring impairment of individual loans based on the present value of expected future cash flows or the fair value of collateral, and determining and measuring impairment for groups of loans with similar characteristics by applying loss factors that consider the qualitative factors which may affect the loss rates.

The allowance for loan losses was $5.3 million at March 31, 2020 and $5.1 million at December 31, 2019. Management has deemed these amounts as adequate at each date based on its best estimate of probable known and inherent loan losses at each date. While it is too early to know the full extent of potential future losses associated with the impact of COVID-19, management continues to monitor the situation and may need to adjust future expectations as developments occur throughout the remainder of the year. At March 31, 2020, nonperforming loans amounted to $1.7 million compared to $1.8 million at December 31, 2019. Included in nonperforming loans were loans 90 days or more past due and still accruing interest of $56,000 and $13,000 at March 31, 2020 and December 31, 2019, respectively. These loans were accruing interest because the estimated value of the collateral and collection efforts are deemed sufficient to ensure full recovery. At March 31, 2020 and December 31, 2019, nonaccrual loans amounted to $1.7 million and $1.8 million, respectively.

Noninterest income for the three-month periods ended March 31, 2020 and 2019. Noninterest income for the quarter ended March 31, 2020 decreased $49,000 compared to the quarter ended March 31, 2019. The first quarter of 2020 included a $394,000 unrealized loss on equity securities compared to a $131,000 unrealized gain on equity securities during the same period in 2019. Gains on the sale of loans and ATM and debit card fees increased $201,000 and $118,000, respectively, when comparing the two periods. During the first quarter of 2019, Bank recorded a $97,000 loss on the sale of securities and time deposits. No sales of securities or time deposits were recorded during the same period in 2020.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC.

Noninterest expense for the three-month periods ended March 31, 2020 and 2019. Noninterest expense for the quarter ended March 31, 2020 increased $160,000 compared to the quarter ended March 31, 2019. Compensation and benefits expense increased $460,000 when comparing the two periods due to normal salaries and benefit increases, increased incentive compensation related to loan sales and increased stock-based compensation expense. This was partially offset by decreases in net losses on foreclosed real estate, other operating expenses and professional fees of $194,000, $70,000 and $55,000, respectively.

Income tax expense. Income tax expense decreased $53,000 for the first quarter of 2020 as compared to the first quarter of 2019 primarily due to an increase in nontaxable income recognized for the quarter ended March 31, 2020. As a result, the effective tax rate for the quarter ended March 31, 2020 was 15.6% as compared to 17.1% for the same period in 2019.

Liquidity and Capital Resources

The Bank’s primary sources of funds are customer deposits, proceeds from loan repayments, maturing securities and FHLB advances. While loan repayments and maturities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, general economic conditions and competition. At March 31, 2020, the Bank had cash and cash equivalents of $59.7 million and securities available-for-sale with a fair value of $253.2 million. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB of Indianapolis and additional collateral eligible for repurchase agreements.

The Bank’s primary investing activity is the origination of one-to-four family mortgage loans and commercial real estate loans and, to a lesser extent, consumer, multi-family, commercial business and residential construction loans. The Bank also invests in U.S. Government and agency securities and mortgage-backed securities issued by U.S. Government agencies.

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities. Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company, on a stand-alone basis, is responsible for paying any dividends declared to its shareholders. The Board of Directors of the Company also has authorized the repurchase of shares of its common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the Indiana Department of Financial Institutions (“IDFI”), cannot exceed net income for that year to date plus retained net income (as defined under Indiana law) for the preceding two calendar years. On a stand-alone basis, the Company had liquid assets of $3.0 million at March 31, 2020.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC.

The Bank is required to maintain specific amounts of capital pursuant to regulatory requirements. 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 will be 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 March 31, 2020 and its CBLR was 10.45% as of that date. At March 31, 2020, the Bank was considered “well-capitalized” under applicable regulatory guidelines.

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with GAAP, are not recorded on the Company’s financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are primarily used to manage customers’ requests for funding and take the form of loan commitments and letters of credit. A further presentation of the Company’s off-balance sheet arrangements is presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

For the three months ended March 31, 2020, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company’s financial condition, results of operations or cash flows.

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PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC.

Qualitative Aspects of Market Risk. Market risk is the risk that the estimated fair value of the Company’s assets and liabilities will decline as a result of changes in interest rates or financial market volatility, or that the Company’s net income will be significantly reduced by interest rate changes.

The Company’s principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Company has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. In order to reduce the exposure to interest rate fluctuations, the Company has developed strategies to manage its liquidity, shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by emphasizing the origination of short-term commercial and consumer loans, all of which are retained by the Company for its portfolio. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits, compared to brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

Quantitative Aspects of Market Risk. The Company does not maintain a trading account for any class of financial instrument nor does the Company engage in hedging activities or purchase high-risk derivative instruments. Furthermore, the Company is not subject to foreign currency exchange rate risk or commodity price risk.

Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits, extending loans and investing in investment securities. Many factors affect the Company’s exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. The Company’s earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Board of Governors of the Federal Reserve System.

An element in the Company’s ongoing process is to measure and monitor interest rate risk using a Net Interest Income at Risk simulation to model the interest rate sensitivity of the balance sheet and to quantify the impact of changing interest rates on the Company. The model quantifies the effects of various possible interest rate scenarios on projected net interest income over a one-year horizon. The model assumes a semi-static balance sheet and measures the impact on net interest income relative to a base case scenario of hypothetical changes in interest rates over twelve months and provides no effect given to any steps that management might take to counter the effect of the interest rate movements. The scenarios include prepayment assumptions, changes in the level of interest rates, the shape of the yield curve, and spreads between market interest rates in order to capture the impact from re-pricing, yield curve, option, and basis risks.

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PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC.

Results of the Company’s simulation modeling, which assumes an immediate and sustained parallel shift in market interest rates, project that the Company’s net interest income could change as follows over a one-year horizon, relative to our base case scenario, based on March 31, 2020 and December 31, 2019 financial information:

	At March 31, 2020						At December 31, 2019
Immediate Change	One Year Horizon						One Year Horizon
in the Level	Dollar			Percent			Dollar			Percent
of Interest Rates	Change			Change			Change			Change
	(Dollars in thousands)
300bp	$	2,159			7.94	%	$	3,438			11.59	%
200bp		2,334			8.62			2,392			8.07
100bp		1,154			4.26			1,289			4.35
Static		-			-			-			-
(100)bp		(810	)		(2.99	)		(1,562	)		(5.27	)

At March 31, 2020 and December 31, 2019, the Company’s simulated exposure to a change in interest rates shows that an immediate and sustained increase in rates of 1.00%, 2.00% or 3.00% would increase the Company’s net interest income over a one year horizon compared to a flat interest rate scenario. Alternatively, an immediate and sustained decrease in rates of 1.00% would decrease the Company’s net interest income over a one year horizon compared to a flat interest rate scenario. During the three months ended March 31, 2020, the Company updated discount rates and betas on loan and deposits to better reflect the market and also updated deposit decay rates to levels indicated in a third-party study of customer accounts.

The Company also has longer term interest rate risk exposure, which may not be appropriately measured by Net Interest Income at Risk modeling. Therefore, the Company also uses an Economic Value of Equity (“EVE”) interest rate sensitivity analysis in order to evaluate the impact of its interest rate risk on earnings and capital. This is measured by computing the changes in net EVE for its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. EVE modeling involves discounting present values of all cash flows for on and off balance sheet items under different interest rate scenarios and provides no effect given to any steps that management might take to counter the effect of the interest rate movements. The discounted present value of all cash flows represents the Company’s EVE and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. The amount of base case EVE and its sensitivity to shifts in interest rates provide a measure of the longer term re-pricing and option risk in the balance sheet.

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PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC.

Results of the Company’s simulation modeling, which assumes an immediate and sustained parallel shift in market interest rates, project that the Company’s EVE could change as follows, relative to the Company’s base case scenario, based on March 31, 2020 and December 31, 2019 financial information:

	At March 31, 2020
Immediate Change	Economic Value of Equity								Economic Value of Equity as a
in the Level	Dollar		Dollar			Percent			Percent of Present Value of Assets
of Interest Rates	Amount		Change			Change			EVE Ratio			Change
300bp	$	166,445	$	39,579			31.20	%		21.34	%		607	bp
200bp		160,080		33,214			26.18			20.14			487	bp
100bp		141,941		15,075			11.88			17.54			227	bp
Static		126,866		-			-			15.27			0	bp
(100)bp		102,652		(24,214	)		(19.09	)		12.11			(316	)bp

	At December 31, 2019
Immediate Change	Economic Value of Equity								Economic Value of Equity as a
in the Level	Dollar		Dollar			Percent			Percent of Present Value of Assets
of Interest Rates	Amount		Change			Change			EVE Ratio			Change
300bp	$	203,781	$	56,973			38.81	%		25.40	%		773	bp
200bp		187,704		40,896			27.86			23.10			543	bp
100bp		168,710		21,902			14.92			20.52			285	bp
Static		146,808		-			-			17.67			0	bp
(100)bp		123,104		(23,704	)		(16.15	)		14.64			(303	)bp

The previous tables indicate that at March 31, 2020 and December 31, 2019 the Company would expect an increase in its EVE in the event of a sudden and sustained 100, 200 or 300 basis point increase in prevailing interest rates and a decrease in its EVE in the event of a sudden and sustained 100 basis point decrease in prevailing interest rates. As previously mentioned in this report, during the three months ended March 31, 2020, the Company updated discount rates and betas on loan and deposits to better reflect the market and also updated deposit decay rates to levels indicated in a third-party study of customer accounts.

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PART I – ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC.

The models are driven by expected behavior in various interest rate scenarios and many factors besides market interest rates affect the Company’s net interest income and EVE. For this reason, the Company models many different combinations of interest rates and balance sheet assumptions to understand its overall sensitivity to market interest rate changes. Therefore, as with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables and it is recognized that the model outputs are not guarantees of actual results. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in the modeling scenarios.

PART I - ITEM 4

CONTROLS AND PROCEDURES

FIRST CAPITAL, INC.

Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, has 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 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.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

FIRST CAPITAL, INC.

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The disclosures below supplement the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The COVID-19 pandemic could adversely affect the business and results of operations of the Company, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities to the pandemic.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. Due to the COVID-19 pandemic market interest rates have declined significantly, as the Federal Open Market Committee reduced the targeted federal funds interest rate range by 150 basis points during the month of March 2020 to 0% to 0.25%. Also in response to COVID-19, many state and local governments have instituted emergency restrictions that have substantially limited the activities of individuals and the operations of businesses and industries.

COVID-19 has had a substantial impact on numerous aspects of life in the United States, including threats to public health, increased volatility in markets, and severe effects on national and local economies. The ultimate effect of COVID-19 on the Company's business will depend on numerous factors and future developments that are highly uncertain and cannot be predicted with confidence.

At this time, it is unknown how long the COVID-19 pandemic will last, or when restrictions on individuals and businesses will be lifted and businesses and their employees will be able to resume normal activities. As a result, we have faced and may continue to face a decrease in demand for certain products, reduced access to our branches by our customers, and disruptions in the operations of our venders. Additionally, customers that are increasingly forced to work remotely and may not have appropriately secured remote networks may be more vulnerable to cyber-attacks or phishing schemes. Further, additional information may emerge regarding the severity of COVID-19 and additional actions may be taken by federal, state, and local governments to contain COVID-19 or treat its impact. Changes in the behavior of customers, businesses and their employees as a result of the COVID-19 pandemic, including social distancing practices, even after formal restrictions have been lifted, are also unknown. As a result of the COVID-19 pandemic and the actions taken to contain it or reduce its impact, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms.

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PART II

OTHER INFORMATION

FIRST CAPITAL, INC.

(1A – continued)

These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers. The extent to which the pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning its severity and the actions necessary to contain it or address its impact, among others. The duration of these impacts resulting from the COVID-19 is unknown, and the resulting customer behavioral changes are not fully known and may not be temporary.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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PART II

OTHER INFORMATION

FIRST CAPITAL, INC.

Item 6. Exhibits

3.1	Articles of Incorporation of First Capital, Inc. (1)
3.2	Fifth Amended and Restated Bylaws of First Capital, Inc. (2)
11.0	Statement Re: Computation of Per Share Earnings (incorporated by reference to Note 5 of the Unaudited Consolidated Financial Statements contained herein)
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
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.0	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

___________________

(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 Report on Form 8-K files 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.

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SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Dated May 8, 2020	BY:	/s/William W. Harrod
		William W. Harrod
		President and CEO
Dated May 8, 2020	BY:	/s/ Michael C. Frederick
		Michael C. Frederick
		Executive Vice President, CFO
		and Treasurer

EX-31.1

Exhibit 31.1

CERTIFICATION

I, William W. Harrod, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 8, 2020	/s/ William W. Harrod
		William W. Harrod
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael C. Frederick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Capital, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and in preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 8, 2020	/s/ Michael C. Frederick
		Michael C. Frederick
		Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Capital, Inc. and Subsidiaries (the "Company") on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), I, William W. Harrod, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

DATE:	May 8, 2020	BY:	/s/ William W. Harrod
			William W. Harrod
			President and Chief
			Executive Officer
			(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Capital, Inc. and Subsidiaries (the "Company") on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), I, Michael C. Frederick, Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

DATE:	May 8, 2020	BY:	/s/ Michael C. Frederick
			Michael C. Frederick
			Executive Vice President, Chief
			Financial Officer and Treasurer
			(Principal Financial and Accounting
			Officer)

XML

Note 9 - Revenue From Contracts With Customers - Noninterest Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Noninterest income, financial service	$ 1,417	$ 1,240
Net gain (loss) on loans and investments	(35)	192
Increase in cash value of life insurance	47	48
Other	27	25
Other noninterest income	39	265
Total noninterest income	1,456	1,505
Deposit Account [Member]
Noninterest income, financial service	506	461
ATM and Debit Card Fees [Member]
Noninterest income, financial service	765	647
Investment Advisory, Management and Administrative Service [Member]
Noninterest income, financial service	113	98
Product and Service, Other [Member]
Noninterest income, financial service	$ 33	$ 34

XML

Note 3 - Loans and Allowance for Loan Losses - Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Loans	$ 494,116	$ 493,499
Less undisbursed portion of loans in process	(24,638)	(23,081)
Principal loan balance	469,478	470,418
Deferred loan origination fees, net	1,121	1,137
Allowance for loan losses	(5,307)	(5,061)	$ (4,339)	$ (4,065)
Loans, net	465,292	466,494
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans	128,039	131,959
Allowance for loan losses	(929)	(867)	(727)	(693)
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Loans	18,861	19,185
Principal loan balance	18,861	19,185
Deferred loan origination fees, net	14	15
Allowance for loan losses	(163)	(163)	(164)	(162)
Real Estate Mortgage Portfolio Segment [Member] | Residential Construction [Member]
Loans	42,760	35,554
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Loans	129,180	121,563
Principal loan balance	129,180	121,563
Deferred loan origination fees, net	(68)	(62)
Allowance for loan losses	(1,735)	(1,623)	(1,391)	(1,401)
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Construction [Member]
Loans	12,620	20,086
Commercial Portfolio Segment [Member]
Loans	44,811	45,307
Principal loan balance	44,811	45,307
Deferred loan origination fees, net
Allowance for loan losses	(620)	(595)	(541)	(459)
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Loans	54,655	54,677
Principal loan balance	54,655	54,677
Deferred loan origination fees, net	1,065	1,067
Allowance for loan losses	(550)	(515)	(450)	(443)
Consumer Portfolio Segment [Member] | Automobile Loan [Member]
Loans	45,304	46,443
Consumer Portfolio Segment [Member] | Loans Secured by Deposits [Member]
Loans	1,318	1,372
Consumer Portfolio Segment [Member] | Unsecured Loan [Member]
Loans	3,434	3,653
Consumer Portfolio Segment [Member] | Other Consumer Loan [Member]
Loans	13,134	13,700
Allowance for loan losses	$ (957)	$ (948)	$ (775)	$ (683)

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Note 3 - Loans and Allowance for Loan Losses - Recorded Investment in Nonperforming Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total Nonperforming Loans	$ 6,093	$ 6,258
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Total Nonperforming Loans	3,486	4,406
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Total Nonperforming Loans	222	366
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Total Nonperforming Loans	51
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Total Nonperforming Loans	921	146
Commercial Portfolio Segment [Member]
Total Nonperforming Loans	391	119
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Total Nonperforming Loans	559	651
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Total Nonperforming Loans	463	570
Nonperforming Financial Instruments [Member]
Nonaccrual Loans	1,677	1,765
Loans 90+ Days Past Due Still Accruing	56	13
Total Nonperforming Loans	1,733	1,778
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Nonaccrual Loans	1,460	1,544
Loans 90+ Days Past Due Still Accruing	55	13
Total Nonperforming Loans	1,515	1,557
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Nonaccrual Loans	115	115
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans	115	115
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Nonaccrual Loans
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Nonaccrual Loans
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Nonaccrual Loans	61	58
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans	61	58
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Nonaccrual Loans
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Nonaccrual Loans	41	48
Loans 90+ Days Past Due Still Accruing	1
Total Nonperforming Loans	$ 42	$ 48

XML

Note 3 - Loans and Allowance for Loan Losses - Summary of PCI Loans (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Carrying amount	$ 318,000	$ 324,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses	23,000	12,000	$ 11,000
Carrying amount, net of allowance	295,000	312,000
Residential Mortgage Segment [Member] | Residential Loan [Member]
Carrying amount	281,000	285,000
Residential Mortgage Segment [Member] | Commercial Real Estate Loan [Member]
Carrying amount	$ 37,000	$ 39,000

XML

Note 9 - Revenue From Contracts With Customers

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

9. 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 for the

three

months ended

March 31, 2020

and

2019:

	Three Months Ended
	March 31,
	2020			2019
	(In thousands)
Service charges on deposit accounts	$	506		$	461
ATM and debit card fees		765			647
Investment advisory income		113			98
Other		33			34
Revenue from contracts with customers		1,417			1,240
Net gain (loss) on loans and investments		(35	)		192
Increase in cash value of life insurance		47			48
Other		27			25
Other noninterest income		39			265
Total noninterest income	$	1,456		$	1,505

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.

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.

XML

Note 5 - Supplemental Disclosure for Earnings Per Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

5. Supplemental Disclosure for Earnings Per Share

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

Nonvested restricted stock shares are

not

considered as outstanding for purposes of computing weighted average common shares outstanding.

No

shares were excluded from the calculations of diluted net income per share because their effect would be anti-dilutive for the

three

-month periods ended

March 31, 2020

and

2019.

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Note 2 - Investment Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale, amortized cost, due in one year or less	$ 18,895
Securities available for sale, fair value, due in one year or less	18,949
Securities available for sale, amortized cost, due after one year through five years	48,810
Securities available for sale, fair value, due after one year through five years	50,327
Securities available for sale, amortized cost, due after five years through ten years	27,915
Securities available for sale, fair value, due after five years through ten years	29,154
Securities available for sale, amortized cost, due after ten years	41,316
Securities available for sale, fair value, due after ten years	43,074
Securities available for sale, amortized cost, single maturity	136,936
Securities available for sale, fair value, single maturity	141,504
Securities available for sale, amortized cost, Mortgage-backed securities and CMO	110,123
Securities available for sale, fair value, Mortgage-backed securities and CMO	111,678
Securities available for sale, amortized cost	247,059	$ 251,819
Securities available for sale, fair value	253,182	$ 254,562
Debt Securities [Member]
Securities available for sale, amortized cost	247,059
Securities available for sale, fair value	$ 253,182

XML

Note 9 - Revenue From Contracts With Customers (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
	March 31,
	2020			2019
	(In thousands)
Service charges on deposit accounts	$	506		$	461
ATM and debit card fees		765			647
Investment advisory income		113			98
Other		33			34
Revenue from contracts with customers		1,417			1,240
Net gain (loss) on loans and investments		(35	)		192
Increase in cash value of life insurance		47			48
Other		27			25
Other noninterest income		39			265
Total noninterest income	$	1,456		$	1,505

XML

Note 5 - Supplemental Disclosure for Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

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

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
INTEREST INCOME
Loans, including fees	$ 6,276	$ 6,057
Securities:
Taxable	737	984
Tax-exempt	479	391
Dividends	18	26
Other interest income	164	200
Total interest income	7,674	7,658
INTEREST EXPENSE
Deposits	468	456
Total interest expense	468	456
Net interest income	7,206	7,202
Provision for loan losses	351	450
Net interest income after provision for loan losses	6,855	6,752
NONINTEREST INCOME
Noninterest income	1,417	1,240
Loss on sale of securities available for sale and time deposits		(97)
Unrealized gain (loss) on equity securities	(394)	131
Gain on sale of loans	359	158
Increase in cash value of life insurance	47	48
Other income	60	59
Total noninterest income	1,456	1,505
NONINTEREST EXPENSE
Compensation and benefits	3,502	3,042
Occupancy and equipment	439	397
Data processing	796	838
Professional fees	174	229
Advertising	108	89
Net loss on foreclosed real estate	1	195
Other expenses	805	875
Total noninterest expense	5,825	5,665
Income before income taxes	2,486	2,592
Income tax expense	389	442
Net Income	2,097	2,150
Less: net income attributable to the noncontrolling interest in subsidiary	3	3
Net Income Attributable to First Capital, Inc.	$ 2,094	$ 2,147
Earnings per common share attributable to First Capital, Inc.:
Basic (in dollars per share)	$ 0.63	$ 0.64
Diluted (in dollars per share)	0.63	0.64
Dividends per share on common shares (in dollars per share)	$ 240	$ 230
Deposit Account [Member]
NONINTEREST INCOME
Noninterest income	$ 506	$ 461
ATM and Debit Card Fees [Member]
NONINTEREST INCOME
Noninterest income	765	647
Investment Advisory, Management and Administrative Service [Member]
NONINTEREST INCOME
Noninterest income	$ 113	$ 98

XML

Note 1 - Presentation of Interim Information

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Presentation of Interim Information

First Capital, Inc. (“Company”) is the financial holding company for First Harrison Bank (“Bank”), an Indiana chartered commercial bank and wholly owned subsidiary. First Harrison Investments, Inc. and First Harrison Holdings, Inc. are wholly-owned Nevada corporate subsidiaries of the Bank that jointly own First Harrison, LLC, a Nevada limited liability corporation that holds and manages an investment portfolio. First Harrison REIT, Inc. (“REIT”) is a wholly-owned subsidiary of First Harrison Holdings, Inc. that holds a portion of the Bank’s real estate mortgage loan portfolio. FHB Risk Mitigation Services, Inc. (“Captive”) is a wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance to

eight

other

third

party insurance captives for which insurance

may

not

be currently available or economically feasible in the insurance marketplace. Heritage Hill, LLC is a wholly-owned subsidiary of the Bank that holds and manages certain foreclosed real estate properties.

In the opinion of management, the unaudited consolidated financial statements include all adjustments considered necessary to present fairly the financial position as of

March 31, 2020,

and the results of operations for the

three

months ended

March 31, 2020

and

2019

and the cash flows for the

three

months ended

March 31, 2020

and

2019.

All of these adjustments are of a normal, recurring nature. Such adjustments are the only adjustments included in the unaudited consolidated financial statements. Interim results are

not

necessarily indicative of results for a full year or any other period.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and are presented as permitted by the instructions to Form

10

-Q. Accordingly, they do

not

contain certain information included in the Company’s annual audited consolidated financial statements and related footnotes for the year ended

December 31, 2019

included in the Company’s Annual Report on Form

10

-K.

The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with the current period presentation. The reclassifications had

no

effect on net income or stockholders’ equity.

COVID-

19

On

March 11, 2020,

the World Health Organization declared the outbreak of the novel coronavirus (“COVID-

19”

) as a global pandemic, which continues to spread throughout the United States and around the world. The COVID-

19

pandemic has adversely affected, and

may

continue to adversely affect economic activity globally, nationally and locally. COVID-

19

and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. Such events also

may

adversely affect business and consumer confidence, generally, and the Company and its customers, and their respective suppliers, vendors and processors,

may

be adversely affected.

Due to the COVID-

19

pandemic market interest rates have declined significantly, as the Federal Open Market Committee reduced the targeted federal funds interest rate range by

150

basis points during the month of

March 2020

to

0%

to

0.25%.

These reductions in interest rates and other effects of the COVID-

19

pandemic

may

adversely affect the Company's financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-

19

pandemic will last and what the financial impact will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans.

On

March 22, 2020,

the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”. This guidance encourages financial institutions to work prudently with borrowers that

may

be unable to meet their contractual obligations because of the effects of COVID-

19.

The guidance goes on to explain that in consultation with the Financial Accounting Standards Board (“FASB”) staff that the federal banking agencies concluded that short-term modifications (e.g.,

six

months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are

not

troubled debt restructurings (“TDRs”). The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on

March 27, 2020.

The CARES Act also addressed COVID-

19

related modifications and specified that COVID-

19

related modifications on loans that were current as of

December 31, 2019

are

not

TDRs. The Bank has applied this guidance related to payment deferrals and other COVID-

19

related loan modifications made through

March 31, 2020,

and additional modifications are expected in the

second

quarter of

2020.

The CARES Act also included an allocation of

$349

billion for loans to be issued by financial institutions through the Small Business Administration (“SBA”). This program is known as the Paycheck Protection Program (“PPP”). PPP loans are forgivable, in whole or in part, if the proceeds are used for eligible payroll costs and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of

1.00%

and a term of

two

years, if

not

forgiven in whole or in part. Payments are deferred for the

first

six

months of the loan and the loans are

100%

guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from

1%

to

5%,

based on the size of the loan. The SBA began accepting submissions for these PPP loans on

April 3, 2020

and the initial allocation of funds was exhausted on

April 16, 2020.

An additional

$310

billion was allocated to the PPP on

April 27, 2020.

Through

May 6, 2020,

the Bank had received SBA authorizations for PPP loans totaling approximately

$44.6

million. Participation in the PPP will likely have a positive impact on the Company’s financial position and results of operations as this fee income is recognized over the term of the PPP loans.

XML

Note 4 - Qualified Affordable Housing Project Investment (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Investment Amortization	$ 96,000	$ 82,000
Tax Credits and Other Tax Benefits	111,000	$ 125,000
Other Assets [Member]
Investments, Total	3,100,000		$ 3,200,000
Other Liabilities [Member]
Fair Value, Investments, Entities that Calculate Net Asset Value Per Share, Unfunded Commitments	$ 1,100,000		$ 1,900,000

XML

Note 6 - Stock-based Compensation Plan - Summary of Nonvested Restricted Shares (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Nonvested, number of shares (in shares) | shares	27,750
Nonvested, weight average grant date fair value (in dollars per share) | $ / shares	$ 41.08
Granted, number of shares (in shares) | shares	14,250
Granted, weight average grant date fair value (in dollars per share) | $ / shares	$ 67.43
Vested, number of shares (in shares) | shares	750
Vested, weight average grant date fair value (in dollars per share) | $ / shares	$ 40.59
Forfeited, number of shares (in shares) | shares
Forfeited, weight average grant date fair value (in dollars per share) | $ / shares
Nonvested, number of shares (in shares) | shares	41,250
Nonvested, weight average grant date fair value (in dollars per share) | $ / shares	$ 50.19

XML

Note 8 - Fair Value Measurements - Carrying Value and Estimated Fair Value of Financial Instruments (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale	$ 253,182,000	$ 254,562,000
Equity Securities, FV-NI	1,400,000	1,700,000
Reported Value Measurement [Member]
Cash and cash equivalents	59,722,000	51,360,000
Interest-bearing time deposits	6,490,000	6,490,000
Securities available for sale	253,182,000	254,562,000
Loans held for sale	3,085,000	4,176,000
Loans, net	465,292,000	466,694,000
FHLB and other restricted stock	1,988,000	1,988,000
Accrued interest receivable	2,863,000	3,076,000
Equity Securities, FV-NI	1,352,000	1,746,000
Deposits	722,618,000	722,177,000
Accrued interest payable	219,000	210,000
Estimate of Fair Value Measurement [Member]
Cash and cash equivalents	59,722,000	51,360,000
Interest-bearing time deposits	6,835,000	6,654,000
Securities available for sale	253,182,000	254,562,000
Loans held for sale	3,142,000	4,243,000
Loans, net	476,293,000	482,119,000
Accrued interest receivable	2,863,000	3,076,000
Equity Securities, FV-NI	1,352,000	1,746,000
Deposits	723,217,000	721,729,000
Accrued interest payable	219,000	210,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	59,722,000	51,360,000
Interest-bearing time deposits
Securities available for sale
Loans held for sale
Loans, net
Accrued interest receivable
Equity Securities, FV-NI	1,352,000	1,746,000
Deposits
Accrued interest payable
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents
Interest-bearing time deposits	6,835,000	6,654,000
Securities available for sale	253,182,000	254,562,000
Loans held for sale	3,142,000	4,243,000
Loans, net
Accrued interest receivable	2,863,000	3,076,000
Equity Securities, FV-NI
Deposits
Accrued interest payable	219,000	210,000
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents
Interest-bearing time deposits
Securities available for sale
Loans held for sale
Loans, net	476,293,000	482,119,000
Accrued interest receivable
Equity Securities, FV-NI
Deposits	723,217,000	721,729,000
Accrued interest payable

XML

Note 1 - Presentation of Interim Information (Details Textual) $ in Millions	1 Months Ended
	Apr. 29, 2020 USD ($)
Subsequent Event [Member]
Authorization Received for PPP Loans, Amount	$ 44.6

XML

Note 6 - Stock-based Compensation Plans (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

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

XML

Note 2 - Investment Securities - Investment Securities Available for Sale (Details) $ in Thousands	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Number of investment positions - less than twelve months	22	24
Fair value - less than twelve months	$ 20,641	$ 24,264
Gross unrealized losses - less than twelve months	$ 219	$ 201
Number of investment positions - more than twelve months	2	75
Fair value - more than twelve months	$ 322	$ 93,852
Gross unrealized losses - more than twelve months	$ 1	$ 700
Number of investment positions	24	99
Fair value	$ 20,963	$ 118,116
Gross unrealized losses	$ 220	$ 901
Agency Collateralized Mortgage Obligations [Member]
Number of investment positions - less than twelve months	15	13
Fair value - less than twelve months	$ 16,012	$ 14,749
Gross unrealized losses - less than twelve months	$ 137	$ 157
Number of investment positions - more than twelve months	2	15
Fair value - more than twelve months	$ 322	$ 7,113
Gross unrealized losses - more than twelve months	$ 1	$ 64
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Number of investment positions - less than twelve months		5
Fair value - less than twelve months		$ 723
Gross unrealized losses - less than twelve months		$ 2
Number of investment positions - more than twelve months		50
Fair value - more than twelve months		$ 49,033
Gross unrealized losses - more than twelve months		$ 574
US States and Political Subdivisions Debt Securities [Member]
Number of investment positions - less than twelve months	7	4
Fair value - less than twelve months	$ 4,629	$ 3,241
Gross unrealized losses - less than twelve months	$ 82	$ 25
US Government Agencies Debt Securities [Member]
Number of investment positions - less than twelve months		2
Fair value - less than twelve months		$ 5,551
Gross unrealized losses - less than twelve months		$ 17
Number of investment positions - more than twelve months		10
Fair value - more than twelve months		$ 37,706
Gross unrealized losses - more than twelve months		$ 62

XML

Note 2 - Investment Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) [Text Block]

2. Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at

March 31, 2020

and

December 31, 2019

are summarized as follows:

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

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

The amortized cost and fair value of debt securities as of

March 31, 2020,

by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and CMO

may

differ from contractual maturities because the mortgages underlying the obligations

may

be prepaid without penalty.

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

Information pertaining to investment securities with gross unrealized losses at

March 31, 2020,

aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

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

Information pertaining to investment securities with gross unrealized losses at

December 31, 2019,

aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

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

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (

1

) the length of time and the extent to which the fair value has been less than cost, (

2

) the financial condition and near-term prospects of the issuer, and (

3

) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recover in fair value.

At

March 31, 2020,

the U.S. government agency debt securities, including agency notes and bonds, mortgage-backed securities and CMO, and municipal obligations in a loss position had depreciated approximately

1.0%

from the amortized cost basis. All of the U.S. government agency securities and municipal obligations are issued by U.S. government agencies, government-sponsored enterprises and municipal governments, or are secured by

first

mortgage loans and municipal project revenues. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale,

no

declines are deemed to be other-than-temporary.

While management does

not

anticipate any credit-related impairment losses at

March 31, 2020,

additional deterioration in market and economic conditions

may

have an adverse impact on credit quality in the future.

During the

three

months ended

March 31, 2019,

the Company realized gross losses of

$86,000

on sales of available for sale securities and gross losses of

$11,000

on sales of time deposits. During the

three

months ended

March 31, 2020,

the Company sold

no

securities or time deposits.

Certain available for sale debt securities were pledged to secure public fund deposits at

March 31, 2020

and

December 31, 2019.

Equity Securities

In

September 2018,

the Company acquired

90,000

shares of common stock in another bank holding company, representing approximately

5%

of the outstanding common stock of the entity, for a total investment of

$1.9

million. During the

three

months ended

March 31, 2020,

the Company recognized an unrealized loss of

$394,000

on this equity investment. During the

three

months ended

March 31, 2019,

the Company recognized an unrealized gain of

$131,000

on this equity investment. At

March 31, 2020

and

December 31, 2019,

the equity investment had a fair value of

$1.4

million and

$1.7

million, respectively, and is included in other assets on the consolidated balance sheet.

XML

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

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Apr. 24, 2020
Document Information [Line Items]
Entity Registrant Name	FIRST CAPITAL INC
Entity Central Index Key	0001070296
Trading Symbol	fcap
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		3,377,882
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common stock, par value $0.01 per share

XML

Note 8 - Fair Value Measurements - Assets Measured at Fair Value on Recurring and Nonrecurring Basis (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale	$ 253,182,000	$ 254,562,000
Equity securities	1,400,000	1,700,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure	0
Other Consumer Loan [Member]
Impaired loans	42,000
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale	70,069,000	69,498,000
Agency Collateralized Mortgage Obligations [Member]
Securities available for sale	41,609,000	43,084,000
US Government Agencies Debt Securities [Member]
Securities available for sale	60,569,000	64,556,000
Municipal Notes [Member]
Securities available for sale	80,935,000	77,424,000
Fair Value, Recurring [Member]
Securities available for sale	253,182,000	254,562,000
Equity securities	1,352,000	1,746,000
Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale	70,069,000	69,498,000
Fair Value, Recurring [Member] | Agency Collateralized Mortgage Obligations [Member]
Securities available for sale	41,609,000	43,084,000
Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale	60,569,000	64,556,000
Fair Value, Recurring [Member] | Municipal Notes [Member]
Securities available for sale	80,935,000	77,424,000
Fair Value, Nonrecurring [Member]
Impaired loans	2,732,000	2,731,000
Loans held for sale	3,085,000	4,176,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure		170,000
Fair Value, Nonrecurring [Member] | Residential Mortgage Segment [Member]
Impaired loans	1,825,000	1,910,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure		170,000
Fair Value, Nonrecurring [Member] | Land Segment [Member]
Impaired loans	115,000	115,000
Fair Value, Nonrecurring [Member] | Commercial Real Estate Segment [Member]
Impaired loans	447,000	353,000
Fair Value, Nonrecurring [Member] | Commercial Business Segment [Member]
Impaired loans	247,000	249,000
Fair Value, Nonrecurring [Member] | Home Equity and Second Mortgage [Member]
Impaired loans	56,000	56,000
Fair Value, Nonrecurring [Member] | Other Consumer Loan [Member]
Impaired loans		48,000
Fair Value, Inputs, Level 1 [Member] | Other Consumer Loan [Member]
Impaired loans
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member]
Securities available for sale
Equity securities	1,352,000	1,746,000
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member] | Agency Collateralized Mortgage Obligations [Member]
Securities available for sale
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale
Fair Value, Inputs, Level 1 [Member] | Fair Value, Recurring [Member] | Municipal Notes [Member]
Securities available for sale
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans
Loans held for sale
Real Estate Acquired through Foreclosure, Fair Value Disclosure
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Residential Mortgage Segment [Member]
Impaired loans
Real Estate Acquired through Foreclosure, Fair Value Disclosure
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Land Segment [Member]
Impaired loans
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Segment [Member]
Impaired loans
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Commercial Business Segment [Member]
Impaired loans
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Home Equity and Second Mortgage [Member]
Impaired loans
Fair Value, Inputs, Level 1 [Member] | Fair Value, Nonrecurring [Member] | Other Consumer Loan [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Other Consumer Loan [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]
Securities available for sale	253,182,000	254,562,000
Equity securities
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale	70,069,000	69,498,000
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Agency Collateralized Mortgage Obligations [Member]
Securities available for sale	41,609,000	43,084,000
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale	60,569,000	64,556,000
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member] | Municipal Notes [Member]
Securities available for sale	80,935,000	77,424,000
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans
Loans held for sale	3,085,000	4,176,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Residential Mortgage Segment [Member]
Impaired loans
Real Estate Acquired through Foreclosure, Fair Value Disclosure
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Land Segment [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Segment [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Commercial Business Segment [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Home Equity and Second Mortgage [Member]
Impaired loans
Fair Value, Inputs, Level 2 [Member] | Fair Value, Nonrecurring [Member] | Other Consumer Loan [Member]
Impaired loans
Fair Value, Inputs, Level 3 [Member] | Other Consumer Loan [Member]
Impaired loans	42,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member]
Securities available for sale
Equity securities
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member] | Agency Collateralized Mortgage Obligations [Member]
Securities available for sale
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale
Fair Value, Inputs, Level 3 [Member] | Fair Value, Recurring [Member] | Municipal Notes [Member]
Securities available for sale
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member]
Impaired loans	2,732,000	2,731,000
Loans held for sale
Real Estate Acquired through Foreclosure, Fair Value Disclosure		170,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Residential Mortgage Segment [Member]
Impaired loans	1,825,000	1,910,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure		170,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Land Segment [Member]
Impaired loans	115,000	115,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Commercial Real Estate Segment [Member]
Impaired loans	447,000	353,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Commercial Business Segment [Member]
Impaired loans	247,000	249,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Home Equity and Second Mortgage [Member]
Impaired loans	$ 56,000	56,000
Fair Value, Inputs, Level 3 [Member] | Fair Value, Nonrecurring [Member] | Other Consumer Loan [Member]
Impaired loans		$ 48,000

XML

Note 3 - Loans and Allowance for Loan Losses - Accretable Yield, or Income Expected to be Collected (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Balance at beginning of period	$ 403	$ 423
New loans purchased
Accretion to income	(11)	(12)
Disposals and other adjustments
Reclassification from nonaccretable difference	(17)	(2)
Balance at end of period	$ 375	$ 409

XML

Note 6 - Stock-based Compensation Plans (Details Textual) - USD ($)				3 Months Ended
	Feb. 18, 2020	Feb. 19, 2019	May 20, 2009	Mar. 31, 2020	Mar. 31, 2019	May 22, 2019	May 20, 2019
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)				14,250
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share)				$ 67.43
Share-based Payment Arrangement, Expense				$ 93,000	$ 56,000
Share-based Payment Arrangement, Expense, Tax Benefit				$ 28,000	$ 14,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period (in shares)				750
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value				$ 54,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total				$ 1,800,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)				4 years
Restricted Stock [Member] | Officers, Directors and Key Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	14,250	9,750
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share)	$ 67.43	$ 52.09
Stock Issued During Period, Value, Restricted Stock Award, Gross	$ 961,000	$ 508,000
Restricted Stock [Member] | Officers, Directors and Key Employees [Member] | Share-based Payment Arrangement, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	20.00%	20.00%
Equity Incentive Plan 2009 [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)			223,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)							176,150
Equity Incentive Plan 2019 [Member]
Maximum Fair Value of First Exercisable Stock Incentive Options			$ 100,000
Equity Incentive Plan 2019 [Member] | Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)						176,150
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)				161,900
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)			10 years
Equity Incentive Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)				0

XML

Note 3 - Loans and Allowance for Loan Losses - Troubled Debt Restructuring by Accrual Status (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Recorded investment in loans	$ 472,125	$ 473,187
Loans	472,125	473,187
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Recorded investment in loans	128,608	132,539
Loans	128,608	132,539
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Recorded investment in loans	129,456	121,813
Loans	129,456	121,813
Commercial Portfolio Segment [Member]
Recorded investment in loans	44,928	45,449
Loans	44,928	45,449
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Recorded investment in loans	55,938	55,988
Loans	55,938	55,988
Nonperforming Financial Instruments [Member]
TDR accruing	1,265	1,166
TDR nonaccrual	65	66
Recorded investment in loans	1,330	1,232
TDR related allowance for loan losses
Loans	1,330	1,232
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
TDR accruing	381	367
TDR nonaccrual	65	66
Recorded investment in loans	446	433
TDR related allowance for loan losses
Loans	446	433
Nonperforming Financial Instruments [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
TDR accruing	643	553
TDR nonaccrual
Recorded investment in loans	643	553
TDR related allowance for loan losses
Loans	643	553
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
TDR accruing	186	191
TDR nonaccrual
Recorded investment in loans	186	191
TDR related allowance for loan losses
Loans	186	191
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
TDR accruing	55	55
TDR nonaccrual
Recorded investment in loans	55	55
TDR related allowance for loan losses
Loans	$ 55	$ 55

XML

Note 3 - Loans and Allowance for Loan Losses (Details Textual)	3 Months Ended			12 Months Ended
	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)	Apr. 24, 2020
Loans Charge-off Period (Day)	90 days
Performance Period (Year)	6 years
Collateral Dependent Loans, Value of Significant Properties	$ 200,000
SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate, Foreclosure	0			$ 170,000
Mortgage Loans in Process of Foreclosure, Amount	289,000			319,000
Impaired Financing Receivable, Interest Income, Cash Basis Method, Total	0		$ 0
Financing Receivable, Troubled Debt Restructuring, Commitment to Lend	0			0
Financing Receivable, Modifications, Number of Contracts			0
Financing Receivable, Troubled Debt Restructuring, Premodification and Postmodification	$ 265,000
Troubled Debt Restructuring, Principal Charge-offs		$ 0	$ 0
Troubled Debt Restructuring, Specific Allowance		$ 0	$ 0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0		0
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Outstanding Balance, Total	$ 452,000			466,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses	$ 23,000		$ 11,000	12,000
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Allowance for Loan Losses			$ 0
Subsequent Event [Member]
Financing Receivable, Percentage Payment Extensions Approved Under PPP					11.70%
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts	1
Residential Portfolio Segment [Member]
Financing Receivable, Modifications, Number of Contracts	1
Classified Loans [Member]
Allowance for Loan and Lease Losses, Period Increase (Decrease), Total	$ 407,000			386,000
Overall Qualitative Factor [Member]
Allowance for Loan and Lease Losses, Period Increase (Decrease), Total	$ 4,100,000			$ 3,800,000
Bank Overdrafts [Member]
Loans Charge-off Period (Day)	45 days

XML

Note 3 - Loans and Allowance for Loan Losses - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Recorded investment with no allowance	$ 178		$ 2,558
Unpaid principal balance with no allowance	198		2,818
Related allowance with no allowance
Average recorded investment with no allowance	184	$ 312
Interest income recognized with no allowance
Recorded investment with allowance	2,747		189
Unpaid principal balance with allowance	3,044		211
Related allowance	15		16
Average recorded investment with allowance	2,748	3,868
Interest income recognized with allowance	18	8
Recorded investment			2,747
Unpaid principal balance			3,029
Related allowance	15		16
Unpaid principal balance with no allowance	198		2,818
Unpaid principal balance			3,029
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Recorded investment with no allowance	1,662		1,737
Unpaid principal balance with no allowance	1,927		1,986
Related allowance with no allowance
Average recorded investment with no allowance	1,700	2,181
Interest income recognized with no allowance	6	3
Recorded investment with allowance	178		189
Unpaid principal balance with allowance	198		211
Related allowance	15		16
Average recorded investment with allowance	184	76
Interest income recognized with allowance
Recorded investment	1,840		1,926
Unpaid principal balance	2,125		2,197
Related allowance	15		16
Average recorded investment	1,884	2,257
Interest income recognized	6	3
Unpaid principal balance with no allowance	1,927		1,986
Unpaid principal balance	2,125		2,197
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Recorded investment with no allowance	115		115
Unpaid principal balance with no allowance	119		117
Related allowance with no allowance
Average recorded investment with no allowance	115	171
Interest income recognized with no allowance
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance
Interest income recognized with allowance
Recorded investment	115		115
Unpaid principal balance	119		117
Related allowance
Average recorded investment	115	171
Interest income recognized
Unpaid principal balance with no allowance	119		117
Unpaid principal balance	119		117
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Recorded investment with no allowance
Unpaid principal balance with no allowance
Related allowance with no allowance
Average recorded investment with no allowance		523
Interest income recognized with no allowance
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance
Interest income recognized with allowance
Recorded investment
Unpaid principal balance
Related allowance
Average recorded investment		523
Interest income recognized
Unpaid principal balance with no allowance
Unpaid principal balance
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Recorded investment with no allowance	447		353
Unpaid principal balance with no allowance	446		352
Related allowance with no allowance
Average recorded investment with no allowance	400	253
Interest income recognized with no allowance	9	2
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance		103
Interest income recognized with allowance
Recorded investment	447		353
Unpaid principal balance	446		352
Related allowance
Average recorded investment	400	356
Interest income recognized	9	2
Unpaid principal balance with no allowance	446		352
Unpaid principal balance	446		352
Commercial Portfolio Segment [Member]
Recorded investment with no allowance	247		249
Unpaid principal balance with no allowance	255		257
Related allowance with no allowance
Average recorded investment with no allowance	248	398
Interest income recognized with no allowance	2	3
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance		119
Interest income recognized with allowance
Recorded investment	247		249
Unpaid principal balance	255		257
Related allowance
Average recorded investment	248	517
Interest income recognized	2	3
Unpaid principal balance with no allowance	255		257
Unpaid principal balance	255		257
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Recorded investment with no allowance	56		56
Unpaid principal balance with no allowance	55		56
Related allowance with no allowance
Average recorded investment with no allowance	56	30
Interest income recognized with no allowance	1
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance		14
Interest income recognized with allowance
Recorded investment	56		56
Unpaid principal balance	55		56
Related allowance
Average recorded investment	56	44
Interest income recognized	1
Unpaid principal balance with no allowance	55		56
Unpaid principal balance	55		56
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Recorded investment with no allowance	42		48
Unpaid principal balance with no allowance	44		50
Related allowance with no allowance
Average recorded investment with no allowance	45
Interest income recognized with no allowance
Recorded investment with allowance
Unpaid principal balance with allowance
Related allowance
Average recorded investment with allowance
Interest income recognized with allowance
Recorded investment	42		48
Unpaid principal balance	44		50
Related allowance
Average recorded investment	45
Interest income recognized
Unpaid principal balance with no allowance	44		50
Unpaid principal balance	$ 44		$ 50

XML

Note 10 - Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Accounting Standards Update and Change in Accounting Principle [Text Block]

10. Recent Accounting Pronouncements

The following are summaries of recently issued or adopted accounting pronouncements that impact the accounting and reporting practices of the Company:

In

June 2016,

the FASB issued Accounting Standards Update (“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. For the Company, the amendments in the update were originally effective for fiscal years beginning after

December 15, 2019,

including interim periods within those fiscal years. The Company is currently assessing the impact the guidance will have upon adoption, but management expects its allowance for loan losses to increase through a

one

-time adjustment to retained earnings. However, until the evaluation is complete, the magnitude of the increase will be unknown. In planning for the implementation of ASU

2016

-

13,

the Company has formed a CECL implementation team consisting of members of senior management that meets on a periodic basis and is currently evaluating software solutions, data requirements and loss methodologies.

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. Early adoption is permitted as of fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company is a smaller reporting company as defined by the SEC, and currently does

not

intend to early adopt CECL.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

. The update removes, modifies and adds certain disclosure requirements for fair value measurements. Among other changes, entities will

no

longer be required to disclose the amount of and reasons for transfers between Level

1

and Level

2

of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level

3

fair value measurements, but will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. The amendments in the update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

Early adoption is permitted upon issuance of the update. The adoption of this update effective

January 1, 2020

did

not

have a material impact on the Company’s consolidated financial position or results of operations.

XML

Note 6 - Stock-based Compensation Plans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

6. Stock-Based Compensation Plan

On

May 20, 2009,

the Company adopted the

2009

Equity Incentive Plan (the

“2009

Plan”) which terminated as of

May 20, 2019.

The

2009

Plan provided for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the

2009

Plan could

not

exceed

223,000

shares and

176,150

shares were still available for issuance under the

2009

Plan at its termination.

On

May 22, 2019,

the Company adopted the

2019

Equity Incentive Plan (the

“2019

Plan”). The

2019

Plan provides for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the

2019

Plan

may

not

exceed

176,150

shares. If an award under the

2009

Plan is canceled, terminates, expires, is forfeited or lapses for any reason, any issued shares subject to the award shall

not

be available for issuance pursuant to awards subsequently granted under the

2019

Plan. Further,

no

additional participants, as that term is defined in the

2009

Plan, are eligible for grants of awards under the

2009

Plan.

At

March 31, 2020,

161,900

shares of the Company’s common stock were available for issuance under the

2019

Plan. The Company

may

grant both non-statutory and statutory stock options which

may

not

have a term exceeding

ten

years. In the case of incentive stock options, the aggregate fair value of the stock (determined at the time the incentive stock option is granted) for which any optionee

may

be granted incentive options which are

first

exercisable during any calendar year shall

not

exceed

$100,000.

Option prices

may

not

be less than the fair market value of the underlying stock at the date of the grant. An award of a performance share is a grant of a right to receive shares of the Company’s common stock which is contingent upon the achievement of specific performance criteria or other objectives set at the grant date. Stock appreciation rights are equity or cash settled share-based compensation arrangements whereby the number of shares that will ultimately be issued or the cash payment is based upon the appreciation of the Company’s common stock. Awards granted under the

2019

Plan

may

be granted either alone, in addition to, or in tandem with, any other award granted under the

2019

Plan. The terms of the

2019

Plan also include provisions whereby all unearned options and restricted shares become immediately exercisable and fully vested upon a change in control.

The fair market value of stock options granted is estimated at the date of grant using an option pricing model. Expected volatilities are based on historical volatility of the Company's stock. The expected term of options granted represents the period of time that options are expected to be outstanding and is based on historical trends. The risk free rate for the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. As of

March 31, 2020,

no

stock options had been granted under the Plans.

On

February 18, 2020,

the Company granted

14,250

restricted stock shares under the

2019

Plan to directors, officers and key employees at a grant-date price of

$67.43

per share for a total of

$961,000.

The restricted stock vests ratably from the grant date through

July 1, 2025,

with

20%

of the shares vesting each year on

July 1

beginning

July 1, 2021.

On

February 19, 2019,

the Company granted

9,750

restricted stock shares under the

2009

Plan to directors, officers and key employees at a grant-date price of

$52.09

per share for a total of

$508,000.

The restricted stock vests ratably from the grant date through

July 1, 2024,

with

20%

of the shares vesting each year on

July 1

beginning

July 1, 2020.

Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The Company accounts for any forfeitures when they occur, and any previously recognized compensation for an award is reversed in the period the award is forfeited. Compensation expense related to restricted stock recognized for the

three

-month periods ended

March 31, 2020

and

2019

amounted to

$93,000

and

$56,000,

respectively. The total income tax benefit related to stock-based compensation was

$28,000

and

$14,000

for the

three

-month periods ended

March 31, 2020

and

2019,

respectively.

A summary of the Company’s nonvested restricted shares under the Plan as of

March 31, 2020

and changes during the

three

-month period then ended is presented below.

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

There were

750

restricted shares that vested during the

three

-month period ended

March 31, 2020

upon the retirement of a director. The total fair value of restricted shares that vested during the

three

-month period ended

March 31, 2020

was

$54,000.

At

March 31, 2020,

there was

$1.8

million of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of

4.0

years.

XML

Note 2 - Investment Securities - Investment Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale, amortized cost	$ 247,059	$ 251,819
Securities available for sale, gross unrealized gains	6,343	3,644
Securities available for sale, gross unrealized losses	220	901
Securities available for sale, at fair value	253,182	254,562
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Securities available for sale, amortized cost	68,746	69,984
Securities available for sale, gross unrealized gains	1,323	90
Securities available for sale, gross unrealized losses		576
Securities available for sale, at fair value	70,069	69,498
Agency Collateralized Mortgage Obligations [Member]
Securities available for sale, amortized cost	41,377	43,067
Securities available for sale, gross unrealized gains	370	238
Securities available for sale, gross unrealized losses	138	221
Securities available for sale, at fair value	41,609	43,084
US Government Agencies Debt Securities [Member]
Securities available for sale, amortized cost	59,139	64,162
Securities available for sale, gross unrealized gains	1,430	473
Securities available for sale, gross unrealized losses		79
Securities available for sale, at fair value	60,569	64,556
Municipal Notes [Member]
Securities available for sale, amortized cost	77,797	74,606
Securities available for sale, gross unrealized gains	3,220	2,843
Securities available for sale, gross unrealized losses	82	25
Securities available for sale, at fair value	$ 80,935	$ 77,424

XML

Note 8 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

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

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Carrying		Fair		Fair Value Measurements Using
(In thousands)	Value		Value		Level 1		Level 2		Level 3
March 31, 2020
Financial assets:
Cash and cash equivalents	$	59,722	$	59,722	$	59,722	$	-	$	-
Interest-bearing time deposits		6,490		6,835		-		6,835		-
Securities available for sale		253,182		253,182		-		253,182		-
Loans held for sale		3,085		3,142		-		3,142		-
Loans, net		465,292		476,293		-		-		476,293
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		2,863		2,863		-		2,863		-
Equity securities (included in other assets)		1,352		1,352		1,352		-		-
Financial liabilities:
Deposits		722,618		723,217		-		-		723,217
Accrued interest payable		219		219		-		219		-
December 31, 2019:
Financial assets:
Cash and cash equivalents	$	51,360	$	51,360	$	51,360	$	-	$	-
Interest-bearing time deposits		6,490		6,654		-		6,654		-
Securities available for sale		254,562		254,562		-		254,562		-
Loans held for sale		4,176		4,243		-		4,243		-
Loans, net		466,694		482,119		-		-		482,119
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		3,076		3,076		-		3,076		-
Equity securities (included in other assets)		1,746		1,746		1,746		-		-
Financial liabilities:
Deposits		722,177		721,729		-		-		721,729
Accrued interest payable		210		210		-		210		-

XML

Note 5 - Supplemental Disclosure for Earnings Per Share (Details Textual) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	0	0

XML

Note 7 - Supplemental Disclosures of Cash Flow Information - Supplemental Disclosures of Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest	$ 459	$ 428
Taxes (net of refunds received)	$ 0	$ 0

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 2,097	$ 2,150
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of premiums and accretion of discounts on securities, net	534	391
Depreciation and amortization expense	305	264
Deferred income taxes	164	(74)
Stock compensation expense	93	56
Increase in cash value of life insurance	(47)	(48)
Loss on sale of securities and time deposits		97
Provision for loan losses	351	450
Proceeds from sales of loans	23,561	7,942
Loans originated for sale	(22,111)	(6,312)
Gain on sale of loans	(359)	(158)
Amortization of tax credit investment	96	82
Unrealized (gain) loss on equity securities	394	(131)
Net realized and unrealized loss on foreclosed real estate		136
(Increase) decrease in accrued interest receivable	213	(7)
Increase in accrued interest payable	9	27
Net change in other assets/liabilities	(768)	66
Net Cash Provided By Operating Activities	4,532	4,931
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing time deposits	245	490
Proceeds from sales of interest-bearing time deposits		1,460
Purchase of interest-bearing time deposits	(245)	(985)
Purchase of securities available for sale	(15,390)	(17,862)
Proceeds from maturities of securities available for sale	9,685	15,645
Proceeds from sales of securities available for sale		5,437
Principal collected on mortgage-backed obligations	9,930	5,533
Net (increase) decrease in loans receivable	851	(15,972)
Investment in tax credit entity	(848)	(152)
Proceeds from sale of foreclosed real estate	170	8
Purchase of premises and equipment	(198)	(214)
Net Cash Provided By (Used In) Investing Activities	(4,200)	6,612
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	441	16,885
Dividends paid	(811)	(773)
Net Cash Provided By (Used In) Financing Activities	(370)	16,112
Net Increase in Cash and Cash Equivalents	8,362	14,431
Cash and cash equivalents at beginning of period	51,360	41,112
Cash and Cash Equivalents at End of Period	$ 59,722	$ 55,543

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	7,500,000	7,500,000
Common stock, shares issued (in shares)	3,805,533	3,791,283
Common stock, shares outstanding (in shares)	3,377,882	3,363,632
Treasury stock, shares (in shares)	427,651	427,651

XML

Note 3 - Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

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

Financing Receivable, Current, Allowance for Credit Loss [Table Text Block]

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

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

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

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

Impaired Financing Receivables [Table Text Block]

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

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

Financing Receivable, Nonaccrual [Table Text Block]

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

Financing Receivable, Past Due [Table Text Block]

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

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

Financing Receivable Credit Quality Indicators [Table Text Block]

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

Schedule of Troubled Debt Restructurings by Accrual Status [Table Text Block]

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

Schedule of Purchased Credit Impaired Loans [Table Text Block]

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

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Table Text Block]

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

Financing Receivable [Member]

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

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

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

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Note 8 - Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

8. Fair Value Measurements

FASB ASC Topic

820

, Fair Value Measurements,

provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level

1

measurements) and the lowest priority to unobservable inputs (Level

3

measurements). The

three

levels of the fair value hierarchy under FASB ASC Topic

820

are described as follows:

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth on the following page. These valuation methodologies were applied to all of the Company’s financial and nonfinancial assets carried at fair value or the lower of cost or fair value. The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of

March 31, 2020

and

December 31, 2019.

The Company had

no

liabilities measured at fair value as of

March 31, 2020

or

December 31, 2019.

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

Fair value is based upon quoted market prices, where available. If quoted market prices are

not

available, fair value is based on internally developed models or obtained from

third

parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments

may

be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments

may

include unobservable parameters. Any such valuation adjustments have been applied consistently over time. The Company’s valuation methodologies

may

produce a fair value calculation that

may

not

be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale and Equity Securities

.

Securities classified as available for sale and equity securities are reported at fair value on a recurring basis.  These securities are classified as Level

1

of the valuation hierarchy where quoted market prices from reputable

third

-party brokers are available in an active market. If quoted market prices are

not

available, the Company obtains fair value measurements from an independent pricing service.  These securities are reported using Level

2

inputs and the fair value measurements consider observable data that

may

include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independent

third

party pricing service are

not

available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level

3

of the fair value hierarchy. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect. Changes in fair value of equity securities are recorded in noninterest income on the consolidated statements of income.

Impaired Loans

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

3

in the fair value hierarchy.

Impaired loans are carried at the present value of estimated future cash flows using the loan's effective interest rate or the fair value of collateral less estimated costs to sell if the loan is collateral dependent. At

March 31, 2020

and

December 31, 2019,

all impaired loans were considered to be collateral dependent for the purpose of determining fair value. Collateral

may

be real estate and/or business assets, including equipment, inventory and/or accounts receivable. The fair value of the collateral is generally determined based on real estate appraisals or other independent evaluations by qualified professionals, adjusted for estimated costs to sell the property, costs to complete or repair the property and other factors to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral.

At

March 31, 2020,

the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral and estimated costs to sell the collateral ranging from

40%

to

47%,

with a weighted average discount of

45%.

At

December 31, 2019,

the significant unobservable inputs used in the fair value measurement of impaired loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral and estimated costs to sell the collateral ranging from

40%

to

66%,

with a weighted average discount of

47%.

The Company recognized a reduction in provisions for loan losses for impaired loans for the

three

months ended

March 31, 2020

of

$1,000

and provisions for loan losses for impaired loans for the

three

months ended

March 31, 2019

of

$20,000.

Loans Held for Sale

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

2.

Foreclosed Real Estate

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

3

in the fair value hierarchy.

Foreclosed real estate is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the collateral. At

March 31, 2020,

the Company had

no

foreclosed real estate. At

December 31, 2019,

the discount from appraised value was

38%.

There were

no

charges to write down foreclosed real estate recognized in income for the

three

months ended

March 31, 2020.

The Company recognized losses of

$137,000

to write down foreclosed real estate for the

three

months ended

March 31, 2019.

There have been

no

changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the

three

month periods ended

March 31, 2020

and

2019.

There were

no

transfers into or out of the Company’s Level

3

financial assets for the

three

month periods ended

March 31, 2020

and

2019.

GAAP requires disclosure of the fair value of financial assets and financial liabilities, whether or

not

recognized in the balance sheet. In cases where quoted market prices are

not

available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could

not

be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do

not

represent the underlying value of the Company. The estimated fair values of the Company's financial instruments are as follows:

	Carrying		Fair		Fair Value Measurements Using
(In thousands)	Value		Value		Level 1		Level 2		Level 3
March 31, 2020
Financial assets:
Cash and cash equivalents	$	59,722	$	59,722	$	59,722	$	-	$	-
Interest-bearing time deposits		6,490		6,835		-		6,835		-
Securities available for sale		253,182		253,182		-		253,182		-
Loans held for sale		3,085		3,142		-		3,142		-
Loans, net		465,292		476,293		-		-		476,293
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		2,863		2,863		-		2,863		-
Equity securities (included in other assets)		1,352		1,352		1,352		-		-
Financial liabilities:
Deposits		722,618		723,217		-		-		723,217
Accrued interest payable		219		219		-		219		-
December 31, 2019:
Financial assets:
Cash and cash equivalents	$	51,360	$	51,360	$	51,360	$	-	$	-
Interest-bearing time deposits		6,490		6,654		-		6,654		-
Securities available for sale		254,562		254,562		-		254,562		-
Loans held for sale		4,176		4,243		-		4,243		-
Loans, net		466,694		482,119		-		-		482,119
FHLB and other restricted stock		1,988		N/A		N/A		N/A		N/A
Accrued interest receivable		3,076		3,076		-		3,076		-
Equity securities (included in other assets)		1,746		1,746		1,746		-		-
Financial liabilities:
Deposits		722,177		721,729		-		-		721,729
Accrued interest payable		210		210		-		210		-

XML

Note 4 - Qualified Affordable Housing Project Investment

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investment [Text Block]

4. Qualified Affordable Housing Project Investment

On

January 19, 2018,

the Bank entered into an agreement to invest in qualified affordable housing projects through a limited liability company. At

March 31, 2020

and

December 31, 2019,

the balance of the Bank’s investment was

$3.1

million and

$3.2

million, respectively, and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the qualified affordable housing project investment at

March 31, 2020

and

December 31, 2019

was

$1.1

million and

$1.9

million, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Bank expects to fulfill the commitment as capital calls are made through

2029.

The investment is accounted for using the proportional amortization method. During the

three

month periods ended

March 31, 2020

and

2019,

the Bank recognized amortization expense of

$96,000

and

$82,000,

respectively, which was included in income tax expense on the consolidated statements of income. Additionally, during the

three

month periods ended

March 31, 2020

and

2019,

the Bank recognized tax credits and other tax benefits from its qualified affordable housing project investment of

$111,000

and

$125,000,

respectively.

XML

Note 3 - Loans and Allowance for Loan Losses - Recorded Investments in Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Principal loan balance	$ 469,478	$ 470,418
Accrued interest receivable	1,526	1,632
Net deferred loan origination fees and costs	1,121	1,137
Recorded investment in loans	472,125	473,187
Individually evaluated for impairment	2,747	2,747
Collectively evaluated for impairment	469,060	470,116
Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans	318	324
Real Estate Mortgage Portfolio Segment [Member] | Real Estate Loan [Member]
Principal loan balance	128,039	131,959
Accrued interest receivable	453	462
Net deferred loan origination fees and costs	116	118
Recorded investment in loans	128,608	132,539
Individually evaluated for impairment	1,840	1,926
Collectively evaluated for impairment	126,487	130,328
Real Estate Mortgage Portfolio Segment [Member] | Real Estate Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans	281	285
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Principal loan balance	18,861	19,185
Accrued interest receivable	98	114
Net deferred loan origination fees and costs	14	15
Recorded investment in loans	18,973	19,314
Individually evaluated for impairment	115	115
Collectively evaluated for impairment	18,858	19,199
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Principal loan balance	30,742	32,559
Accrued interest receivable	70	86
Net deferred loan origination fees and costs	(6)	(1)
Recorded investment in loans	30,806	32,644
Individually evaluated for impairment
Collectively evaluated for impairment	30,806	32,644
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Principal loan balance	129,180	121,563
Accrued interest receivable	344	312
Net deferred loan origination fees and costs	(68)	(62)
Recorded investment in loans	129,456	121,813
Individually evaluated for impairment	447	353
Collectively evaluated for impairment	128,972	121,421
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans	37	39
Commercial Portfolio Segment [Member]
Principal loan balance	44,811	45,307
Accrued interest receivable	117	142
Net deferred loan origination fees and costs
Recorded investment in loans	44,928	45,449
Individually evaluated for impairment	247	249
Collectively evaluated for impairment	44,681	45,200
Commercial Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Principal loan balance	54,655	54,677
Accrued interest receivable	218	244
Net deferred loan origination fees and costs	1,065	1,067
Recorded investment in loans	55,938	55,988
Individually evaluated for impairment	56	56
Collectively evaluated for impairment	55,882	55,932
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Principal loan balance	63,190	65,168
Accrued interest receivable	226	272
Net deferred loan origination fees and costs
Recorded investment in loans	63,416	65,440
Individually evaluated for impairment	42	48
Collectively evaluated for impairment	63,374	65,392
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Recorded investment in loans

XML

Note 3 - Loans and Allowance for Loan Losses - Aging of Recorded Investment in Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Past Due	$ 6,093	$ 6,258
Current	465,714	466,605
Loans	472,125	473,187
Financial Asset Acquired with Credit Deterioration [Member]
Loans	318	324
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Past Due	3,486	4,406
Current	124,841	127,848
Loans	128,608	132,539
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans	281	285
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Past Due	222	366
Current	18,751	18,948
Loans	18,973	19,314
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Past Due	51
Current	30,755	32,644
Loans	30,806	32,644
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Past Due	921	146
Current	128,498	121,628
Loans	129,456	121,813
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans	37	39
Commercial Portfolio Segment [Member]
Past Due	391	119
Current	44,537	45,330
Loans	44,928	45,449
Commercial Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Past Due	559	651
Current	55,379	55,337
Loans	55,938	55,988
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Past Due	463	570
Current	62,953	64,870
Loans	63,416	65,440
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Loans
Financial Asset, 30 to 59 Days Past Due [Member]
Past Due	3,779	3,717
Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Past Due	2,050	2,572
Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Past Due	130	185
Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Past Due	51
Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Past Due	672
Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Past Due	112	61
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Past Due	355	395
Financial Asset, 30 to 59 Days Past Due [Member] | Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Past Due	409	504
Financial Asset, 60 to 89 Days Past Due [Member]
Past Due	1,131	1,393
Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Past Due	401	824
Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Past Due	6	101
Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Past Due
Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Past Due	249	146
Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Past Due	218
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Past Due	204	256
Financial Asset, 60 to 89 Days Past Due [Member] | Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Past Due	53	66
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Past Due	1,183	1,148
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Past Due	1,035	1,010
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Past Due	86	80
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Past Due
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Past Due
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Past Due	61	58
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Past Due
Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Past Due	$ 1

XML

Note 7 - Supplemental Disclosures of Cash Flow Information

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

7. Supplemental Disclosures of Cash Flow Information

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

XML

Note 3 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3. Loans and Allowance for Loan Losses

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

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

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

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become

90

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

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

six

consecutive months.

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will

not

be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below. Specific reserves are

not

considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined.

Consumer loans

not

secured by real estate are typically charged off at

90

days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after

45

days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

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

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that

may

affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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

The general component covers loans

not

considered to be impaired. Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior

five

years. The Company’s historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio segment. Management considers changes and trends in the following qualitative loss factors: underwriting standards, economic conditions, changes and trends in past due and classified loans, collateral valuations, loan concentrations and other internal and external factors.

Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are

not

individually evaluated for impairment. The loss factor multiples for classified loans are based on management’s assessment of historical trends regarding losses experienced on classified loans in prior periods. See below for additional discussion of the qualitative factors utilized in management’s allowance for loan loss methodology at

March 31, 2020

and

December 31, 2019.

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

Management utilizes the following portfolio segments in its analysis of the allowance for loan losses: residential real estate, land, construction, commercial real estate, commercial business, home equity and

second

mortgage, and other consumer loans. Additional discussion of the portfolio segments and the risks associated with each segment can be found in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2019.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are

not

classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors. New appraisals are generally obtained for all significant properties when a loan is identified as impaired, and a property is considered significant if the value of the property is estimated to exceed

$200,000.

Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it is

not

deemed necessary to obtain a new appraisal, management bases its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

At

March 31, 2020,

the Company held

no

foreclosed real estate. At

December 31, 2019,

the balance of foreclosed real estate includes

$170,000

of residential real estate properties where physical possession had been obtained. At

March 31, 2020

and

December 31, 2019,

the recorded investment in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was

$289,000

and

$319,000,

respectively.

Loans at

March 31, 2020

and

December 31, 2019

consisted of the following:

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

The following table provides the components of the Company’s recorded investment in loans at

March 31, 2020:

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

The following table provides the components of the Company’s recorded investment in loans at

December 31, 2019:

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

An analysis of the allowance for loan losses as of

March 31, 2020

is as follows:

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

An analysis of the allowance for loan losses as of

December 31, 2019

is as follows:

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

An analysis of the changes in the allowance for loan losses for the

three

months ended

March 31, 2020

is as follows:

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

An analysis of the changes in the allowance for loan losses for the

three

months ended

March 31, 2019

is as follows:

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

At

March 31, 2020

and

December 31, 2019,

the estimated allowance for loan losses related to qualitative factor adjustments to various portfolio segments totaled approximately

$4.1

million and

$3.8

million, respectively. These changes were made to reflect management’s estimates of inherent losses in these portfolio segments at

March 31, 2020

and

December 31, 2019.

The increases to qualitative factors at

March 31, 2020

were largely related to economic uncertainties surrounding COVID-

19.

Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are

not

individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans. The effect of the adjustments for classified loans was to increase the estimated allowance for loan losses by

$407,000

and

$386,000

at

March 31, 2020

and

December 31, 2019,

respectively. These factors were

not

adjusted during the period from

December 31, 2019

to

March 31, 2020.

The following table summarizes the Company’s impaired loans as of

March 31, 2020

and for the

three

months ended

March 31, 2020

and

2019.

The Company did

not

recognize any interest income on impaired loans using the cash receipts method of accounting for the

three

month periods ended

March 31, 2020

and

2019:

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

The following table summarizes the Company’s impaired loans as of

December 31, 2019:

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

Nonperforming loans consists of nonaccrual loans and loans over

90

days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at

March 31, 2020

and

December 31, 2019:

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

The following table presents the aging of the recorded investment in loans at

March 31, 2020:

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

The following table presents the aging of the recorded investment in loans at

December 31, 2019:

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

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

Special Mention:

Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard:

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are

not

corrected.

Doubtful:

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

Loss:

Loans classified as loss are considered uncollectible and of such little value that their continuance on the institution’s books as an asset is

not

warranted.

Loans

not

meeting the criteria above that are analyzed individually as part of the described process are considered to be pass rated loans.

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

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

The following table summarizes the Company’s TDRs by accrual status as of

March 31, 2020

and

December 31, 2019:

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

At

March 31, 2020

and

December 31, 2019,

there were

no

commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

The Company restructured

one

commercial real estate loan and

one

residential mortgage loan during the

three

months ended

March 31, 2020,

with a pre-modification and post-modification outstanding balance of

$265,000.

The terms of the modifications included the deferral of contractual principal payments and a maturity extension to lower the payment. There were

no

TDRs that were restructured during the

three

months ended

March 31, 2019.

There were

no

principal charge-offs recorded as a result of TDRs and there was

no

specific allowance for loan losses related to TDRs modified during the

three

months ended

March 31, 2020

or

2019.

There were

no

TDRs modified within the previous

12

months for which there was a subsequent payment default (defined as the loan becoming more than

90

days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the

three

months ended

March 31, 2020

and

2019.

In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses

may

be increased or charge-offs

may

be taken to reduce the carrying amount of the loan.

As discussed in Note

1,

the federal banking agencies issued guidance in

March 2020

that short-term modifications (e.g.,

six

months) made to a borrower affected by the COVID-

19

pandemic does

not

need to be identified as a TDR if the loan was current at the time of the modification. The CARES Act also addressed COVID-

19

related modifications and specified that such modifications made on loans that were current as of

December 31, 2019

are

not

TDRs. As of

May 6, 2020,

the Bank had approved payment extensions using this guidance on approximately

11.7%

of balances in the loan portfolio, primarily related to commercial real estate lending relationships. These payment extensions are generally for periods of

one

to

three

months, but

may

extend for up to

six

months.

Purchased Credit Impaired (PCI) Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with

no

carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans that have evidence of credit deterioration since origination for which it is deemed probable at the date of acquisition that the acquirer will

not

collect all contractually required principal and interest payments are accounted for in accordance with FASB Accounting Standards Codification (“ASC”)

310

-

30.

The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which is recognized as future interest income.

The following table presents the carrying amount of PCI loans accounted for under ASC

310

-

30

at

March 31, 2020

and

December 31, 2019:

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

The outstanding balance of PCI loans accounted for under ASC

310

-

30,

including contractual principal, interest, fees and penalties was

$452,000

and

$466,000

at

March 31, 2020

and

December 31, 2019,

respectively.

There was a

$23,000

allowance for loan losses related to PCI loans at

March 31, 2020

and a

$12,000

allowance for loan losses related to PCI loans at

December 31, 2019.

There was a

$11,000

provision for loan losses related to PCI loans for the

three

-month period ended

March 31, 2020.

There were

no

net provisions for loan losses related to PCI loans for the

three

-month period ended

March 31, 2019.

Accretable yield, or income expected to be collected, is as follows for the

three

month periods ended

March 31, 2020

and

2019:

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

XML

Note 2 - Investment Securities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Marketable Securities [Table Text Block]

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

Investments Classified by Contractual Maturity Date [Table Text Block]

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

Schedule of Unrealized Loss on Investments [Table Text Block]

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

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

XML

Note 3 - Loans and Allowance for Loan Losses - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Dec. 31, 2019
Individually evaluated for impairment			$ 15	$ 16
Collectively evaluated for impairment			5,269	5,033
Allowance for loan losses	$ 5,061	$ 4,339	5,307	5,061
Beginning balance	5,061	4,065
Provision for loan losses	351	450
Charge-offs	(159)	(220)
Recoveries	54	44
Ending balance	5,307	4,339
Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses	12		23	12
Beginning balance	12
Ending balance	23
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Individually evaluated for impairment			15	16
Collectively evaluated for impairment			891	839
Allowance for loan losses	867	727	929	867
Beginning balance	867	693
Provision for loan losses	62	71
Charge-offs		(39)
Recoveries		2
Ending balance	929	727
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses	12		23	12
Beginning balance	12
Ending balance	23
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			163	163
Allowance for loan losses	163	164	163	163
Beginning balance	163	162
Provision for loan losses		2
Charge-offs
Recoveries
Ending balance	163	164
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			353	350
Allowance for loan losses	350	291	353	350
Beginning balance	350	224
Provision for loan losses	3	67
Charge-offs
Recoveries
Ending balance	353	291
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			1,735	1,623
Allowance for loan losses	1,623	1,391	1,735	1,623
Beginning balance	1,623	1,401
Provision for loan losses	112	(10)
Charge-offs
Recoveries
Ending balance	1,735	1,391
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance
Commercial Portfolio Segment [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			620	595
Allowance for loan losses	595	541	620	595
Beginning balance	595	459
Provision for loan losses	25	82
Charge-offs
Recoveries
Ending balance	620	541
Commercial Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			550	515
Allowance for loan losses	515	450	550	515
Beginning balance	515	443
Provision for loan losses	33	5
Charge-offs
Recoveries	2	2
Ending balance	550	450
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance
Consumer Portfolio Segment [Member] | Other Consumer Loan [Member]
Allowance for loan losses	957	775	957	948
Beginning balance	948	683
Provision for loan losses	116	233
Charge-offs	(159)	(181)
Recoveries	52	40
Ending balance	957	$ 775
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Individually evaluated for impairment
Collectively evaluated for impairment			957	948
Allowance for loan losses	948		957	$ 948
Beginning balance	948
Ending balance	957
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Allowance for loan losses
Ending balance

XML

Note 3 - Loans and Allowance for Loan Losses - Recorded Investment in Loans by Risk Category (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans	$ 472,125	$ 473,187
Pass [Member]
Loans	464,278	466,049
Special Mention [Member]
Loans	2,017	2,209
Substandard [Member]
Loans	4,191	3,164
Doubtful [Member]
Loans	1,639	1,765
Unlikely to be Collected Financing Receivable [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans	128,608	132,539
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Pass [Member]
Loans	125,357	129,613
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Special Mention [Member]
Loans	386	46
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Substandard [Member]
Loans	1,443	1,336
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Doubtful [Member]
Loans	1,422	1,544
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member]
Loans	18,973	19,314
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Pass [Member]
Loans	18,460	18,805
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Special Mention [Member]
Loans	321	327
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Substandard [Member]
Loans	77	67
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Doubtful [Member]
Loans	115	115
Real Estate Mortgage Portfolio Segment [Member] | Land Loan [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member]
Loans	30,806	32,644
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Pass [Member]
Loans	30,806	32,394
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Special Mention [Member]
Loans		250
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Substandard [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Doubtful [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Construction Loans [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member]
Loans	129,456	121,813
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Pass [Member]
Loans	126,799	119,469
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Special Mention [Member]
Loans	784	1,136
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Substandard [Member]
Loans	1,873	1,208
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Doubtful [Member]
Loans
Real Estate Mortgage Portfolio Segment [Member] | Commercial Real Estate Loan [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Commercial Portfolio Segment [Member]
Loans	44,928	45,449
Commercial Portfolio Segment [Member] | Pass [Member]
Loans	44,032	44,879
Commercial Portfolio Segment [Member] | Special Mention [Member]
Loans	464	378
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans	371	134
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans	61	58
Commercial Portfolio Segment [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member]
Loans	55,938	55,988
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Pass [Member]
Loans	55,511	55,569
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Special Mention [Member]
Loans
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Substandard [Member]
Loans	427	419
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Doubtful [Member]
Loans
Consumer Portfolio Segment [Member] | Home Equity and Second Mortgage [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member]
Loans	63,416	65,440
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Pass [Member]
Loans	63,313	65,320
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Special Mention [Member]
Loans	62	72
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Substandard [Member]
Loans
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Doubtful [Member]
Loans	41	48
Consumer Portfolio Segment [Member] | All Other Consumer Excluding Home Equity and Second Mortgage [Member] | Unlikely to be Collected Financing Receivable [Member]
Loans

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Note 2 - Investment Securities (Details Textual) - USD ($)	1 Months Ended	3 Months Ended
	Sep. 30, 2018	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Available-for-Sale, Securities in Unrealized Loss Positions, Depreciation from Amortized Cost Percentage		1.00%
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total		$ 0
Debt Securities, Available-for-sale, Realized Loss		394,000	$ 86,000
Debt Securities, Time Deposits, Realized Loss		0	11,000
Debt Securities, Available-for-sale, Realized Gain		0	$ 131,000
Investment, Number of Shares Acquired (in shares)	90,000
Investment Ownership Percentage	5.00%
Payments to Acquire Other Investments	$ 1,900,000
Equity Securities, FV-NI		$ 1,400,000		$ 1,700,000

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Note 7 - Supplemental Disclosures of Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

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

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Note 5 - Supplemental Disclosure for Earnings Per Share - Supplemental Disclosure for Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income attributable to First Capital, Inc.	$ 2,094	$ 2,147
Weighted average common shares outstanding (in shares)	3,336,459	3,329,844
Net income attributable to First Capital, Inc. per common share, basic (in dollars per share)	$ 0.63	$ 0.64
Weighted average common shares outstanding (in shares)	3,336,459	3,329,844
Add: Dilutive effect of restricted stock (in shares)	13,257	10,100
Weighted average common shares outstanding, as adjusted (in shares)	3,349,716	3,339,944
Net income attributable to First Capital, Inc. per common share, diluted (in dollars per share)	$ 0.63	$ 0.64

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Note 8 - Fair Value Measurements (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 0		$ 0
Provision for Loan and Lease Losses, Total	351,000	$ 450,000
Real Estate Acquired through Foreclosure, Fair Value Disclosure	0
Impaired Loan [Member]
Provision for Loan and Lease Losses, Total	1,000	20,000
Foreclosed Real Estate [Member]
SEC Schedule, 12-28, Real Estate Companies, Investment in Real Estate, Write-down or Reserve, Amount	$ 0	$ 137,000
Fair Value, Inputs, Level 3 [Member] | Impaired Loan [Member] | Minimum [Member]
Fair Value Inputs, Estimated Selling Costs	40.00%		40.00%
Fair Value, Inputs, Level 3 [Member] | Impaired Loan [Member] | Maximum [Member]
Fair Value Inputs, Estimated Selling Costs	47.00%		66.00%
Fair Value, Inputs, Level 3 [Member] | Impaired Loan [Member] | Weighted Average [Member]
Fair Value Inputs, Estimated Selling Costs	45.00%		47.00%
Fair Value, Inputs, Level 3 [Member] | Foreclosed Real Estate [Member]
Fair Value Inputs, Estimated Selling Costs			38.00%

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Deferred Compensation, Share-based Payments [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]	Total
Balances at Dec. 31, 2018	$ 38	$ 40,215	$ 58,137	$ (3,477)	$ (720)	$ (8,349)	$ 112	$ 85,956
Net Income			2,147				3	2,150
Other comprehensive income				1,839				1,839
Cash dividends								(773)
Cash dividends			(773)
Restricted stock grants		508			(508)
Stock compensation expense					56			56
Balances at Mar. 31, 2019	38	40,723	59,511	(1,638)	(1,172)	(8,349)	115	89,228
Balances at Dec. 31, 2019	38	40,723	65,266	2,142	(940)	(8,393)	112	98,948
Net Income			2,094				3	2,097
Other comprehensive income				2,581				2,581
Cash dividends								(811)
Cash dividends			(811)
Restricted stock grants		961			(961)
Stock compensation expense					93			93
Balances at Mar. 31, 2020	$ 38	$ 41,684	$ 66,549	$ 4,723	$ (1,808)	$ (8,393)	$ 115	$ 102,908

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
ASSETS
Cash and due from banks	$ 19,470	$ 18,922
Interest bearing deposits with banks	1,388	3,412
Federal funds sold	38,864	29,026
Total cash and cash equivalents	59,722	51,360
Interest-bearing time deposits	6,490	6,490
Securities available for sale, at fair value	253,182	254,562
Loans, net	465,292	466,494
Loans held for sale	3,085	4,176
Federal Home Loan Bank and other stock, at cost	1,988	1,988
Foreclosed real estate		170
Premises and equipment	16,343	16,414
Accrued interest receivable	2,863	3,076
Cash value of life insurance	8,316	8,269
Goodwill	6,472	6,472
Core deposit intangible	782	819
Other assets	6,640	7,206
Total Assets	831,175	827,496
LIABILITIES
Noninterest-bearing	146,552	146,097
Interest-bearing	576,066	576,080
Total deposits	722,618	722,177
Accrued interest payable	219	210
Accrued expenses and other liabilities	5,430	6,161
Total liabilities	728,267	728,548
EQUITY
Preferred stock of $.01 par value per share Authorized 1,000,000 shares; none issued
Common stock of $.01 par value per share Authorized 7,500,000 shares; issued 3,805,533 shares (3,791,283 in 2019); outstanding 3,377,882 shares (3,363,632 in 2019)	38	38
Additional paid-in capital	41,684	40,723
Retained earnings-substantially restricted	66,549	65,266
Unearned stock compensation	(1,808)	(940)
Accumulated other comprehensive income	4,723	2,142
Less treasury stock, at cost - 427,651 shares	(8,393)	(8,393)
Total First Capital, Inc. stockholders' equity	102,793	98,836
Noncontrolling interest in subsidiary	115	112
Total equity	102,908	98,948
Total Liabilities and Equity	$ 831,175	$ 827,496