First Capital's Tax-Equivalent Margin Expansion Slows

The Tip Desk · October 23, 2026 · 3 min read

The Indiana community bank's tax-equivalent net interest margin reached 4.08% in the third quarter, a 10 bps step-up after a 17 bps expansion in the second quarter.

First Capital, Inc. (FCAP), the holding company for First Harrison Bank, reported net income of $5.1 million, or $1.53 a share, for the quarter ended September 30, 2026, compared with $4.5 million, or $1.34 a share, a year earlier. Annualized return on average equity was 14.40% and return on average assets 1.59%.

The tax-equivalent net interest margin expanded to 4.08% from 3.98% in the second quarter, after a 17 bps expansion to 3.98% from 3.81% in the first quarter. The pace of expansion slowed.

Net interest income rose to $12.51 million from $10.96 million a year earlier. Interest income increased $1.4 million as the average tax-equivalent yield on interest-earning assets moved to 5.23% from 4.94% and average earning assets rose to $1.25 billion from $1.20 billion.

Interest expense decreased $119,000. The average cost of interest-bearing liabilities fell to 1.57% from 1.66% while the average balance of those liabilities increased to $911.5 million from $891.3 million.

Average total loans were $680.8 million, with the loan yield at 6.52%. Average taxable loans were $667.2 million at a 6.53% yield and tax-exempt loans $13.6 million at 5.92%. Average investment securities were $439.6 million at a 3.67% yield.

The provision for credit losses increased to $355,000 from $150,000 a year earlier. Net charge-offs were $123,000 versus $17,000.

Noninterest income declined $14,000 to $2.29 million, primarily a $9,000 loss on equity securities versus a $150,000 gain a year earlier. That decrease was partly offset by $92,000 higher other income, including $48,000 from a technology investment fund and $45,000 from a renewable energy tax credit investment, and $57,000 higher service charges on deposit accounts.

Noninterest expenses increased $545,000 to $8.11 million, led by $585,000 higher compensation and benefits and $75,000 higher other expenses. The company attributed the compensation increase to annual cost-of-living and performance-related salary adjustments and higher company-provided health insurance costs, and other expenses to general inflationary pressures and routine pricing increases. Occupancy and equipment expenses fell $148,000 after 2025 branch-disposal, call-center and demolition costs that were not present in the third quarter of 2026.

Gross loans were $685.9 million at September 30, 2026, versus $664.2 million at December 31, 2025. Deposits were $1.13 billion. Nonperforming assets rose to $5.5 million from $4.4 million, primarily the nonaccrual classification of a non-owner-occupied commercial real estate loan. Nonaccrual loans were $5.43 million. The allowance for credit losses was $10.95 million, or 1.60% of gross loans.

The Bank’s Community Bank Leverage Ratio was 11.47% at September 30, 2026, versus 11.01% at year-end 2025. Cash dividends were $0.32 a share in the quarter.