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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended MARCH 31, 2004

OR

For the transition period from              to             

Commission File No. 0-25023

First Capital, Inc.

(Exact name of registrant as specified in its charter)

220 Federal Drive NW, Corydon, Indiana 47112

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 1-812-738-2198

Not applicable

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all required 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    NO  x

APPLICABLE ONLY TO CORPORATE ISSUERS; Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,818,579 shares of common stock were outstanding as of April 30, 2004.

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FIRST CAPITAL, INC.

INDEX

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PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to consolidated financial statements.

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PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See accompanying notes to consolidated financial statements.

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PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to consolidated financial statements.

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

First Capital, Inc. (“Company”) is the holding company for First Harrison Bank (“Bank”). The information presented in this report relates primarily to the Bank’s operations.

In the opinion of management, the unaudited consolidated financial statements include all normal adjustments considered necessary to present fairly the financial position as of March 31, 2004, and the results of operations and cash flows for the three months ended March 31, 2004 and 2003. 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.

The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles 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, 2003 included in the Form 10-K.

The unaudited consolidated financial statements include the accounts of the Company and the Bank. All material intercompany balances and transactions have been eliminated in consolidation.

Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income for the Company includes net income and other comprehensive income representing the net unrealized gains and losses on securities available for sale. The following tables set forth the components of other comprehensive income and the allocated tax amounts for the three months ended March 31, 2004 and 2003:

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 20, 2003, the Company consummated its acquisition of Hometown Bancshares, Inc. (Hometown), a bank holding company located in New Albany, Indiana, pursuant to an Agreement and Plan of Merger dated September 25, 2002. Hometown is the parent company of Hometown National Bank, which was merged with and into the Bank. The acquisition was made for the purpose of expanding the Company’s presence in the New Albany and Floyd County, Indiana market area and the Company expects to benefit from growth in this market area as well as from expansion of the banking services provided to the existing customers of Hometown.

Pursuant to the terms of the merger agreement, Hometown stockholders who elected to receive Company stock received 2.487 shares of Company common stock and Hometown shareholders who elected to receive cash received $46.50 in cash for each share of Hometown common stock. Hometown stockholders who did not submit properly completed election forms within the required timeframe received 0.773 shares of Company common stock and $32.05 in cash for each share of Hometown common stock. The Company issued 285,446 shares of common stock and paid approximately $5.4 million in cash consideration to former Hometown stockholders. The value assigned to the common shares issued in the transaction was approximately $6.1 million determined by the average closing price of the Company’s common stock over a twenty day period ending March 17, 2003. The transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations of Hometown have been included in the Company’s results of operations since the date of acquisition. Under the purchase method of accounting, the purchase price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess of cost over the fair value of the net assets acquired of approximately $5.4 million has been recorded as goodwill.

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company accounts for its stock option plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the stock option plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

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FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Safe Harbor Statement for Forward-Looking Statements

This report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on the Company’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company’s actual results, performance and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; and other factors disclosed periodically in the Company’s filings with the Securities and Exchange Commission.

Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this report or made elsewhere from time to time by the Company or on its behalf. Except as required by applicable law or regulation, the Company assumes no obligation to update any forward-looking statements.

Financial Condition

Total assets increased from $409.1 million at December 31, 2003 to $414.6 million at March 31, 2004, an increase of 1.3%. When compared to March 31, 2003, the growth in assets was $17.7 million.

Net loans receivable increased $7.6 million from $304.2 million at December 31, 2003 to $311.8 million at March 31, 2004. The primary growth categories were nontaxable commercial loans, commercial mortgages and commercial loans, increasing by $3.9 million, $1.5 million and $1.5 million, respectively.

Securities available for sale decreased $2.2 million from $66.2 million at December 31, 2003 to $64.0 million at March 31, 2004. The decrease was primarily due to maturities of $5.1 million and principal repayments of $1.0 million, partially offset by purchases of $3.6 million. The funds from the investment portfolio were used to help fund the loan growth.

Investment securities held-to-maturity decreased $174,000 primarily due to maturities of $154,000 and principal repayments of $19,000.

Cash and short-term investments increased from $13.6 million at December 31, 2003 to $13.9 million at March 31, 2004. Short-term investments increased $4.2 million which was partially offset by a decrease in cash of $3.9 million.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Total deposits increased 1.1%, from $302.5 million at December 31, 2003 to $305.8 million at March 31, 2004. Checking and savings accounts increased $6.4 million during the period while time deposits decreased $3.1 million. Hometown National Bank had a large number of customers with jumbo certificates and no other deposit relationship. The Bank made a strategic decision to not give a rate premium on these jumbo certificates without attracting the customers’ primary deposit accounts. This decision has helped attract new savings and checking deposits while keeping interest expense down by not paying a premium for jumbo certificates without other deposit relationships.

Federal Home Loan Bank borrowings increased $1.3 million to $61.6 million at March 31, 2004. New advances of $6.0 million were partially offset by principal payments of $4.7 million.

Total stockholders’ equity increased from $43.9 million at December 31, 2003 to $44.4 million at March 31, 2004, primarily as a result of retained net income of $416,000 and an unrealized gain of $204,000 on securities available for sale partially offset by payments of $148,000 for treasury stock.

Results of Operations

Net Income. Net income was $833,000 ($0.30 per share diluted) for the three months ended March 31, 2004 compared to $721,000 ($0.28 per share diluted) for the same period in 2003. Net income increased due to increases in net interest income and noninterest income, partially offset by an increase in noninterest expense.

Net interest income for the three-month periods ended March 31, 2004 and 2003. Net interest income increased 21.4% from $2.6 million in 2003 to $3.2 million in 2004 as a result of an increase in interest-earning assets funded by growth in deposits and borrowings from the Federal Home Loan Bank.

Total interest income increased $731,000 during the quarter ended March 31, 2004 compared to the same period in 2003. The average balance of interest-earning assets increased from $299.9 million in 2003 to $383.3 million in 2004. The average tax-equivalent yield on these same assets decreased from 6.32% in 2003 to 5.72% in 2004. The decline in yield can be primarily attributed to the continued refinancing of residential mortgages and the repricing of the investment portfolio at lower interest rates.

Total interest expense increased $164,000 to $2.2 million for the quarter ended March 31, 2004 as compared to the same period in 2003. Interest on deposits and Federal Home Loan Bank advances increased $103,000 and $61,000, respectively, when comparing the two periods. The average balance of interest-bearing liabilities increased from $257.5 million in 2003 to $334.5 million in 2004 while the average rate on these same liabilities decreased from 3.20% in 2003 to 2.66% in 2004. As a result, the Bank’s taxable-equivalent interest rate spread decreased from 3.12% for the first quarter of 2003 to 3.06% for the same period in 2004.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Provision for loan losses. The provision for loan losses was $125,000 for the three-month period ended March 31, 2004 as compared to $150,000 for the same period in 2003. During 2004, gross loans receivable increased $7.6 million. The majority of that growth can be attributed to a $4.0 million short-term loan made to a local municipality to be paid back with tax payments. Other significant increases include commercial mortgages and commercial loans, each increasing $1.5 million. However, the consistent application of management’s allowance methodology resulted in a slight decrease in the provision for loan losses due to the lower levels of nonperforming loans at March 31, 2004 compared to December 31, 2003.

Provisions for loan losses are charges to earnings to maintain the total allowance for loan losses at a level considered reasonable by management to provide for probable known and inherent loan losses based on management’s evaluation of the collectibility 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 $2.5 million at March 31, 2004 compared to $2.4 million at December 31, 2003. Management has deemed these amounts as adequate on those dates based on its best estimate of probable known and inherent loan losses. At March 31, 2004, nonperforming loans amounted to $4.4 million compared to $5.2 million at December 31, 2003. Included in nonperforming loans are loans over 90 days past due secured by one-to-four family residential real estate in the amount of $1.3 million, commercial mortgages of $587,000, consumer loans amounting to $84,000 and commercial loans of $39,000. These loans are accruing interest as the estimated value of the collateral and collection efforts are deemed sufficient to ensure full recovery. At March 31, 2004, nonaccrual loans amounted to $2.4 million compared to $2.6 million at December 31, 2003.

Noninterest income. Noninterest income increased 15.5% to $588,000 for the three months ended March 31, 2004 compared to $509,000 for the three months ended March 31, 2003. Service charges on deposits increased $63,000 to $433,000 when comparing the two periods, primarily due to the increase in the number of transaction accounts. Commission income and mortgage brokerage fees increased $39,000 and $38,000, respectively. During the quarter ended March 31, 2003, the Bank recognized a gain of $51,000 on the sale of securities. No securities were sold during the first quarter of 2004.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY

Noninterest expense. Noninterest expense increased $521,000 to $2.4 million for the three month period ended March 31, 2004 compared to $1.9 million for the same period in 2003. When comparing the two periods, compensation and benefits increased $395,000, primarily from the additional staff from three new offices, the two Hometown National Bank locations (see Note 3) and the new Jeffersonville, Indiana office that opened in May of 2003.

Occupancy and equipment expenses increased $60,000 comparing the first quarter of 2004 to the same period in 2003. The three additional facilities were the primary factor behind this increase. Other operating expenses were $61,000 higher in 2004 when comparing the same two periods. Fees for professional services, telephone expenses and the amortization of the core deposit intangible related to the Hometown acquisition were the primary factors behind this increase.

Income tax expense. Income tax expense for the three-month period ended March 31, 2004 was $404,000, compared to $366,000 for the same period in 2003. The effective tax rate was 33.7% for 2003 compared to 32.7% for 2004.

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, 2004, the Bank had cash and interest-bearing deposits with banks of $13.9 million and securities available-for-sale with a fair value of $64.0 million. If the Bank requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB of Indianapolis and collateral eligible for repurchase agreements.

The Bank’s primary investing activity is the origination of one-to-four family mortgage loans and, to a lesser extent, consumer, multi-family, commercial real estate 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 Bank is required to maintain specific amounts of capital pursuant to OTS requirements. As of March 31, 2004, the Bank was in compliance with all regulatory capital requirements, which were effective as of such date with tangible, core and risk-based capital ratios of 8.8%, 8.8% and 13.9%, respectively. The regulatory requirements at that date were 1.5%, 3.0% and 8.0%, respectively.

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PART I - ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC. AND SUBSIDIARY

At March 31, 2004, there has been no material change in the information set forth under the caption “Market Risk Analysis” contained in the Company’s 2003 Annual Report to Stockholders, filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2003.

PART I - ITEM 4

CONTROLS AND PROCEDURES

FIRST CAPITAL, INC. AND SUBSIDIARY

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2004 that has materially affected, or is 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

The Company is not a party to any legal proceedings. Periodically, there have been various claims and lawsuits involving the Bank, mainly as a plaintiff, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. The Bank is not a party to any pending legal proceedings that it believes would have a material adverse affect on its financial condition or operations.

Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

On January 4, 2001, the Company announced a stock repurchase program to purchase up to 101,000 shares of its outstanding common stock. On September 30, 2002, the board of directors authorized an increase in the stock repurchase program in connection with the merger of Hometown Bancshares whereby the Company would purchase up to 345,000 shares of its outstanding common stock. The stock repurchase program expires upon purchase of the maximum number of shares authorized under the program.

The Company has purchased eight shares of its common stock from the First Harrison Bank Employee Stock Ownership Plan representing the aggregate amount of fractional shares of terminated participants.

Item 3.    Defaults upon Senior Securities

Not applicable.

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Item 4.    Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the Company was held on April 21, 2004. There were 2,818,527 shares entitled to vote at the time of the annual meeting. Holders of 2,141,665 shares were represented at the meeting. The results of the vote on the matters presented at the meeting were as follows:

The terms of directors J. Gordon Pendleton, Gerald L. Uhl, Dennis L. Huber, William W. Harrod, John W. Buschemeyer, Kenneth R. Saulman and Kathryn W. Ernstberger continued after the annual meeting.

For 2,106,152; Against 21,929; Abstain 13,584

Item 5.    Other Information

None.

Item 6.    Exhibits and Reports on Form 8-K

(a) Exhibits

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Item 6.    Exhibits and Reports on Form 8-K - (continued)

On January 8, 2004, the Company filed a Form 8-K to announce the annual meeting of stockholders would be held on April 21, 2004.

On January 23, 2004, the Company filed a Form 8-K to announce its earnings for the year and quarter ended December 31, 2003.

On February 6, 2004, the Company filed a Form 8-K to announce an update of its ongoing stock repurchase program.

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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.

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