FIRST CAPITAL INC

1. Presentation of Interim Information

First Capital, Inc. (“Company”) is the financial holding company of 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.

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, 2026, and the results of operations for the three months ended March 31, 2026 and 2025 and the cash flows for the three months ended March 31, 2026 and 2025. 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, 2025 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.

**2.**Recent Accounting Pronouncements

The Company has determined that all recently issued accounting pronouncements will not have a material impact on the Company’s consolidated financial statements or do not apply to its operations.

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**3.**Investment Securities

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at March 31, 2026 and December 31, 2025 are summarized as follows:

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”), the Federal Farm Credit Bank (“FFCB”) and the Federal Home Loan Bank (“FHLB”), which are government-sponsored enterprises. Corporate notes classified as held to maturity include subordinated debt obligations issued by other bank holding companies (“BHC”).

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The amortized cost and fair value of debt securities as of March 31, 2026, 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.

Information pertaining to investment securities with gross unrealized losses at March 31, 2026, aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows.

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Information pertaining to investment securities with gross unrealized losses at December 31, 2025, aggregated by investment category and the length of time that individual investment securities have been in a continuous position, follows.

The Company has not identified any specific available for sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Company reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. At March 31, 2026, management concluded that in all instances, securities with fair values less than carrying value were due to fluctuations in interest rates and other factors; thus, no credit loss provision was required.

In addition, management assesses held to maturity securities for credit losses on a quarterly basis. The assessment includes review of performance metrics, identification of delinquency and evaluation of market factors. Based on all analysis, management concludes the decline in fair value of all securities classified as held to maturity was due to changes in interest rates and other market factors.

At March 31, 2026, the municipal obligations and U.S. government agency debt securities, including Treasury notes and bonds, agency notes and bonds, mortgage-backed securities and CMOs classified as available for sale and in a loss position had depreciated approximately 6.5% 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. At March 31, 2026, the corporate notes classified as held to maturity in a loss position had depreciated approximately 22.2% from the amortized cost basis. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the intent and ability to hold the debt securities until maturity, or the foreseeable future if classified as available for sale, no credit loss is deemed to exist.

As of March 31, 2026 and December 31, 2025, the Company estimated expected credit losses to be immaterial based on the composition of the held to maturity securities portfolio.

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While management does not anticipate any credit losses at March 31, 2026, 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, 2026, the Company recognized gross gains of $169,000 and gross losses of $261,000 on sales of available for sale securities. During the three months ended March 31, 2025, the Company recognized gross gains of $31,000 and gross losses of $86,000 on sales of available for sale securities.

At March 31, 2026 and December 31, 2025, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, with an aggregate book value greater than 10% of stockholders’ equity.

Accrued interest receivable on available for sale debt securities totaled $2.4 million and $2.6 million at March 31, 2026 and December 31, 2025, respectively, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Accrued interest receivable on held to maturity debt securities totaled $18,000 at both March 31, 2026 and December 31, 2025, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Equity Securities

In September 2018, the Company acquired 90,000 shares of common stock in another BHC, 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, 2026 and 2025, the Company recognized a gain of $178,000 and $18,000, respectively. At March 31, 2026 and December 31, 2025, the equity investment had a fair value of $1.2 million and $1.0 million, respectively, and is included in other assets on the consolidated balance sheets.

In October 2021, the Company entered into an agreement to invest in a bank technology fund through a limited partnership and the Company entered into an agreement to participate in a second, related fund in June 2025. At both March 31, 2026 and December 31, 2025, the Company’s investment in the limited partnerships was $910,000 and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the limited partnership investments at March 31, 2026 and December 31, 2025 was $153,000 and $237,000, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Company expects to fulfill the commitment as capital calls are made through 2026. The investments are accounted for as equity securities without a readily determinable fair value, and have been recorded at cost, less any impairment, and adjustments resulting from observable price changes. There wereno impairments or adjustments on equity securities without readily determinable fair values during the three months ended March 31, 2026 or 2025.

**4.**Loans and Allowance for Credit Losses

Loans at March 31, 2026 and December 31, 2025 consisted of the following:

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The Allowance for Credit Losses (“ACL”) on loans is measured on a collective (pooled) basis when similar risk characteristics exist. The Company’s pools/segments are largely determined based on loan types as defined by Call Report instructions.

Loans that do not share risk characteristics are evaluated on an individual basis. In addition, loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.

The following table provides the components of the Company’s amortized cost basis in loans at March 31, 2026 and December 31, 2025:

The following table provides an analysis of the changes in the ACL on loans for the three months ended March 31, 2026 and 2025:

Accrued interest on loans totaled $2.5 million at March 31, 2026 and December 31, 2025 and is included in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

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Company utilizes the Weighted Average Remaining Maturity (“WARM”) method in determining expected future credit losses. The WARM method uses average annual charge-off rates and the remaining life of the loan to estimate the ACL. For the Company’s loan portfolios, the remaining contractual life for each loan is adjusted by the expected scheduled payments and estimated prepayments. The average annual charge-off rate is applied to the amortization adjusted remaining life of the loan to determine the unadjusted lifetime historical charge-off rate. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back periods for the loan portfolio range from one to 10 years depending on the WARM of the given portfolio segment and are updated on an annual basis.

The Company estimates the ACL on loans using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Reasonable and supportable forecasts typically utilize a 12-month period with immediate reversion to historical losses. Historical loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for losses reflected by peers, changes in underwriting standards, changes in economic conditions, changes in delinquency levels, collateral values and other factors.

Qualitative adjustments reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration industry and collateral concentrations, acquired loan portfolio characteristics and other credit-related analytics as deemed appropriate.

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

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. There have been no significant changes to the types of collateral securing the Company’s collateral dependent loans.

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The following table presents the amortized cost basis of, and ACL allocation to, individually evaluated collateral-dependent loans by class of loans as of March 31, 2026 and December 31, 2025:

Nonperforming loans consists of nonaccrual loans and loans past due and still accruing interest. The following table presents the amortized cost basis of loans on nonaccrual status and loans 90 days or more past due still accruing as of March 31, 2026 and December 31, 2025:

No interest income was recognized on nonaccrual loans during the three months ended March 31, 2026 and 2025.

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The following table presents the aging of the amortized cost basis in loans at March 31, 2026 and December 31, 2025:

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, a term extension, an other-than-insignificant payment delay or an interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL on loans. In some cases, the Company may provide multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

During the three months ended March 31, 2026 and 2025, there wereno modifications to borrowers in financial distress. The Company monitors the performance of modified loans and no modified loans were delinquent at March 31, 2026 or December 31, 2025. There wereno loans to borrowers experiencing financial distress that were modified during the previous 12 months and which subsequently defaulted during the three months ended March 31, 2026 and 2025. There wereno unfunded commitments associated with loans modified for borrowers experiencing financial distress as of March 31, 2026 and December 31, 2025.

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Credit Quality Indicators

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

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

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

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

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

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

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The following table provides the risk category of loans by class of loans based on the analysis performed at March 31, 2026:

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The following table provides the risk category of loans by class of loans based on the analysis performed at December 31, 2025:

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ACL on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The ACL for off-balance-sheet credit exposures was $131,000 at both March 31, 2026 and December 31, 2025. The ACL for off-balance-sheet credit exposures is presented in accrued expenses and other liabilities on the consolidated balance sheets. Changes in the ACL for off-balance-sheet credit exposures are reflected in the provision for credit losses on the consolidated statements of income. There wereno changes to the ACL for off-balance-sheet credit exposures during the three months ended March 31, 2026 and 2025.

**5.**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, 2026 and December 31, 2025, the balance of the Bank’s investment was $1.1 million and $1.2 million, respectively, and is reflected in other assets on the consolidated balance sheets. At March 31, 2026 and December 31, 2025, the unfunded commitment related to the qualified affordable housing project investment was $72,000 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.

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On December 16, 2025, the Bank entered into another agreement to invest in qualified affordable housing projects through a limited liability company. At March 31, 2026 and December 31, 2025, the balance of the Bank’s investment was $4.0 million 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, 2026 and December 31, 2025 was $3.1 million and $3.3 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 2036.

The investments are accounted for using the proportional amortization method. During the three month periods ended March 31, 2026 and 2025, the Bank recognized amortization expense of $98,000 and $84,000, respectively, as a component of income tax expense on the consolidated statements of income. Additionally, during the three month periods ended March 31, 2026 and 2025, the Bank recognized income tax credits and other income tax benefits from its qualified affordable housing project investment of $118,000 and $103,000, respectively, which was included in income tax expense on the consolidated statements of income.

**6.**Renewable Energy Tax Credit Investment

On March 26, 2025, April 17, 2024 and April 21, 2023, the Bank entered into agreements to invest in investment tax credits generated by solar energy producing facilities through limited liability companies. At March 31, 2026 and December 31, 2025, the balance of the Bank’s investments in the limited liability companies was $1.3 million and $1.5 million, respectively, and was reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the solar energy tax credit investments was $104,000 and $835,000 at March 31, 2026 and December 31, 2025, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Bank expects to fulfill the commitment as capital calls are made by December 31, 2026.

The investments are accounted for using the proportional amortization method. During the three month periods ended March 31, 2026 and 2025, the Bank recognized amortization expense of $252,000 and $299,000, respectively, as a component of income tax expense on the consolidated statements of income. Additionally, during the three month periods ended March 31, 2026 and 2025, the Bank recognized income tax credits and other income tax benefits from its solar energy tax credit investment of $232,000 and $304,000, respectively, which was included in income tax expense on the consolidated statements of income.

**7.**Borrowed Funds

At March 31, 2026 and December 31, 2025, the Company hadno outstanding borrowings. During the three month periods ended March 31, 2026 and 2025, the Company did not utilize any FHLB advances.

The Company has access to the FRB Discount Window for Borrowings (“Discount Window”). At March 31, 2026 and December 31, 2025, the Company had pledged certain U.S Treasuries and U.S. agency notes and bonds with a carrying value of $17.2 million to secure borrowings through the Discount Window, if needed. While the Company has conducted a test of borrowing through the Discount Window, there wereno borrowings outstanding through the Discount Window at March 31, 2026 or December 31, 2025.

FHLB advances are secured under a blanket collateral agreement. At March 31, 2026, the carrying value of CMO and mortgage-backed securities, mortgage loans and home equity lines of credit pledged as security for future FHLB advances was $33.4 million, $79.9 million, and $8.6 million, respectively. At December 31, 2025, the carrying value of CMO and mortgage-backed securities, mortgage loans and home equity lines of credit pledged as security for FHLB advances was $23.0 million, $77.7 million and $8.2 million, respectively. At March 31, 2026, the Company had a $81.3 million borrowing capacity limit with the FHLB based on pledged collateral.

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**8.**Supplemental Disclosure for Earnings Per Share

Nonvested restricted stock shares are not considered as outstanding for purposes of computing weighted average common shares outstanding. No restricted shares were excluded from the calculation of diluted net income per share for the three month periods ending March 31, 2026 and 2025.

**9.**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” and together with the 2009 Plan, the “Plans”). The 2019 Plan provides for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the 2019 Plan may not exceed 176,150 shares. If an award under the 2009 Plan is canceled, terminates, expires, is forfeited or lapses for any reason, any issued shares subject to the award shall not be available for issuance pursuant to awards subsequently granted under the 2019 Plan. Further, no additional participants, as that term is defined in the 2009 Plan, are eligible for grants of awards under the 2009 Plan. The Company generally issues new shares under the 2019 Plan from its authorized but unissued shares.

At March 31, 2026,152,090 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 exceedingten 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.

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As of March 31, 2026, no stock options had been granted under the Plans.

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, 2026 and 2025 amounted to $20,000 and $38,000, respectively. The total income tax benefit related to stock-based compensation was $5,000 and $9,000, for the three month periods ended March 31, 2026 and 2025, respectively.

A summary of the Company’s nonvested restricted shares under the 2019 Plan as of March 31, 2026 and changes during the three month period then ended is presented below.

There were 150 restricted shares that vested during the three month period ending March 31, 2026 due to the retirement of an employee. There wereno restricted shares that vested during the three month period ended March 31, 2025. The fair value of restricted shares that vested during the three month period ended March 31, 2026 was $8,000. At March 31, 2026, there was $350,000 of unrecognized compensation expense related to nonvested restricted shares. The compensation expense is expected to be recognized over a weighted average period of 4.7 years.

**10.**Supplemental Disclosures of Cash Flow Information

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**11.**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 below. The following table presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of March 31, 2026. The Company hadno liabilities measured at fair value as of March 31, 2026.

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The following table presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of December 31, 2025. The Company hadno liabilities measured at fair value as of December 31, 2025.