Company: FCAP
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001171843-25-001868
Chunk: 46

Company: FIRST CAPITAL INC
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1
Chunk 46
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 monitoring the concentration of our loans within specific markets and our credit approval, review and administrative practices, may not adequately reduce credit risk, and our credit administration personnel, policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our ACL on loans, each of which could adversely affect our net income. As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations.

Higher loan losses could require the Company to increase its ACL on loans and unfunded commitments through a charge to earnings.

When we loan, or commit to loan, money we incur the risk that our borrowers do not repay their loans.  We reserve for credit losses by establishing an allowance through a charge to earnings.  The amount of this allowance is based on our assessment of credit losses inherent in our loan portfolio.  The process for determining the amount of the allowance is critical to our financial results and condition.  It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of our borrowers to repay their loans.  We might underestimate the credit losses inherent in our loan portfolio and have credit losses exceeding the amount reserved.  We might increase the allowance because of changing economic conditions.  For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase.  There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in our charging off more loans and increasing our allowance.  In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined LTV ratios.  Our ACL on loans and unfunded commitments at any particular date may not be sufficient to cover future loan losses.  We may be required to increase our ACL on loans and unfunded commitments, thus reducing earnings.

27

Commercial business lending may expose the Company to increased lending risks.

At December 31, 2024, the Bank’s commercial business loan portfolio amounted to $62.7 million, or 9.8% of total loans.  Subject to market conditions and other factors, the Bank intends to expand its commercial business lending activities within its primary market area.