Company: FCAP
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001171843-25-001868
Chunk: 4

Company: FIRST CAPITAL INC
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1
Chunk 4
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 ratio on fixed-rate and ARM loans to 80% of the lesser of the appraised value or purchase price of the underlying residential property unless private mortgage insurance to cover the excess over 80% is obtained, in which case the mortgage is limited to 95% (or 97% under a Freddie Mac program) of the lesser of appraised value or purchase price.  The LTV ratio, maturity and other provisions of the loans made by the Bank are generally reflected in the policy of making less than the maximum loan permissible under federal regulations, in accordance with established lending practices, market conditions and underwriting standards maintained by the Bank.  The Bank requires title, fire and extended insurance coverage on all mortgage loans originated.  All of the Bank’s real estate loans contain due on sale clauses.  The Bank generally obtains appraisals on all its real estate loans from outside appraisers.

Construction Loans.  The Bank originates construction loans for residential properties and, to a lesser extent, commercial properties.  Although the Bank originates construction loans that are repaid with the proceeds of a limited number of mortgage loans obtained by the borrower from another lender, the majority of the construction loans that the Bank originates are permanently financed in the secondary market by the Bank.  Construction loans originated without a commitment by the Bank to provide permanent financing are generally originated for a term of six to 12 months and at a fixed interest rate based on the prime rate.

The Bank originates speculative construction loans to a limited number of builders operating and based in the Bank’s primary market area and with whom the Bank has well-established business relationships.  At December 31, 2024, the Bank had approved speculative construction loans, a construction loan for which there is not a commitment for permanent financing in place at the time the construction loan was originated, with total commitments of $5.2 million and outstanding balances of $3.2 million.  The Bank limits the number of speculative construction loans outstanding to any one builder based on the Bank’s assessment of the builder’s capacity to service the debt.

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Most construction loans are originated with an LTV ratio not to exceed 80% of the appraised estimated value of the completed property.  The construction loan documents require the disbursement of the loan proceeds in increments as construction progresses.  Disbursements are based on periodic on-site inspections by an independent appraiser.

Construction lending is inherently riskier than residential mortgage lending.  Construction loans, on average, generally have higher loan balances than residential mortgage loans.  In addition