##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from  to



Commission File No. 0-25023



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First Capital, Inc.

(Exact name of registrant as specified in its charter)



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|                                |  |                       
|------------------------------- |  | ----------------------
|Indiana                         |  | 35-2056949            
|(State or other jurisdiction of |  | (I.R.S. Employer      
|incorporation or organization)  |  | Identification Number)



220 Federal Drive
NW, Corydon, Indiana 47112

(Address of principal executive offices) (Zip Code)



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



Not applicable

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



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Indicate by
check mark whether the registrant (1) has filed all 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



The Registrant had 2,816,109 shares of common stock, par value $0.01 per share, outstanding as of October 28, 2004.



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##### Table of Contents

FIRST CAPITAL, INC.



INDEX



|           |  |                                                                                                                      |  |                                                                                       |  |   
|---------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|           |  | Page                                                                                                                
|Part I     |  | Financial Information                                                                                                |  |                                                                                      
|           |  |                                                                                                                      | 
|           |  | Item 1.                                                                                                              |  | Consolidated Financial Statements                                                     |  |   
|           |  |                                                                                                                     
|           |  | Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 (unaudited)                               |  | 3                                                                                    
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Income for the three months and nine months ended September 30, 2004 and 2003 (unaudited) |  | 4                                                                                    
|           |  |                                                                                                                     
|           |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)              |  | 5                                                                                    
|           |  |                                                                                                                     
|           |  | Notes to consolidated financial statements (unaudited)                                                               |  | 6                                                                                    
|           |  |                                                                                                                      | 
|           |  | Item 2.                                                                                                              |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10
|           |  |                                                                                                                      | 
|           |  | Item 3.                                                                                                              |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 15
|           |  |                                                                                                                      | 
|           |  | Item 4.                                                                                                              |  | Controls and Procedures                                                               |  | 17
|           |  |                                                                                                                     
|Part II    |  | Other Information                                                                                                    |  |                                                                                      
|           |  |                                                                                                                      | 
|           |  | Item 1.                                                                                                              |  | Legal Proceedings                                                                     |  | 18
|           |  |                                                                                                                      | 
|           |  | Item 2.                                                                                                              |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 18
|           |  |                                                                                                                      | 
|           |  | Item 3.                                                                                                              |  | Defaults Upon Senior Securities                                                       |  | 19
|           |  |                                                                                                                      | 
|           |  | Item 4.                                                                                                              |  | Submission of Matters to a Vote of Security Holders                                   |  | 19
|           |  |                                                                                                                      | 
|           |  | Item 5.                                                                                                              |  | Other Information                                                                     |  | 19
|           |  |                                                                                                                      | 
|           |  | Item 6.                                                                                                              |  | Exhibits                                                                              |  | 19
|           | 
|Signatures |  | 21                                                                                                                  
|           | 
|Exhibits   |  |                                                                                                                     



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##### Table of Contents

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                          |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                          |  | September 30,2004 |         |   | December 31, 2003 |  
|                                                                                                                          |  | (In thousands)    |        
|ASSETS                                                                                                                    |  |                   |         |   |                   |   |         |  
|Cash and due from banks                                                                                                   |  | $                 | 13,244  |   |                   | $ | 12,190  |  
|Interest bearing deposits with banks                                                                                      |  |                   | 2,849   |   |                   |   | 1,371   |  
|Securities available for sale, at fair value                                                                              |  |                   | 61,978  |   |                   |   | 66,244  |  
|Securities-held to maturity                                                                                               |  |                   | 1,264   |   |                   |   | 1,507   |  
|Loans held for sale                                                                                                       |  |                   | 574     |   |                   |   |        |  
|Loans, net                                                                                                                |  |                   | 320,197 |   |                   |   | 304,200 |  
|Federal Home Loan Bank stock, at cost                                                                                     |  |                   | 3,630   |   |                   |   | 3,094   |  
|Foreclosed real estate                                                                                                    |  |                   | 706     |   |                   |   | 225     |  
|Premises and equipment                                                                                                    |  |                   | 10,070  |   |                   |   | 10,291  |  
|Accrued interest receivable:                                                                                              |  |                   |         |   |                   |   |         |  
|Loans                                                                                                                     |  |                   | 1,437   |   |                   |   | 1,407   |  
|Securities                                                                                                                |  |                   | 560     |   |                   |   | 767     |  
|Cash value of life insurance                                                                                              |  |                   | 1,259   |   |                   |   | 1,228   |  
|Goodwill                                                                                                                  |  |                   | 5,386   |   |                   |   | 5,386   |  
|Core deposit intangibles                                                                                                  |  |                   | 554     |   |                   |   | 609     |  
|Other assets                                                                                                              |  |                   | 526     |   |                   |   | 619     |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|Total Assets                                                                                                              |  | $                 | 424,234 |   |                   | $ | 409,138 |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|LIABILITIES                                                                                                               |  |                   |         |   |                   |   |         |  
|Deposits:                                                                                                                 |  |                   |         |   |                   |   |         |  
|Noninterest-bearing                                                                                                       |  | $                 | 34,162  |   |                   | $ | 30,535  |  
|Interest-bearing                                                                                                          |  |                   | 277,893 |   |                   |   | 271,933 |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|Total Deposits                                                                                                            |  |                   | 312,055 |   |                   |   | 302,468 |  
|                                                                                                                          |  |                  
|Retail repurchase agreements                                                                                              |  |                   | 295     |   |                   |   | 520     |  
|Advances from Federal Home Loan Bank                                                                                      |  |                   | 64,249  |   |                   |   | 60,242  |  
|Accrued interest payable                                                                                                  |  |                   | 1,173   |   |                   |   | 1,160   |  
|Accrued expenses and other liabilities                                                                                    |  |                   | 1,497   |   |                   |   | 853     |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|Total Liabilities                                                                                                         |  |                   | 379,269 |   |                   |   | 365,243 |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|STOCKHOLDERS EQUITY                                                                                                      |  |                   |         |   |                   |   |         |  
|Preferred stock of $.01 par value per share; authorized 1,000,000 shares; none issued                                     |  |                   |        |   |                   |   |        |  
|Common stock of $.01 par value per share; authorized 5,000,000 shares; issued 2,845,331 shares (2,843,763 shares in 2003) |  |                   | 28      |   |                   |   | 28      |  
|Additional paid-in capital                                                                                                |  |                   | 19,249  |   |                   |   | 19,183  |  
|Retained earnings-substantially restricted                                                                                |  |                   | 26,392  |   |                   |   | 25,092  |  
|Unearned ESOP shares                                                                                                      |  |                   | (348    | ) |                   |   | (400    | )
|Unearned stock compensation                                                                                               |  |                   | (21     | ) |                   |   | (73     | )
|Accumulated other comprehensive income                                                                                    |  |                   | 212     |   |                   |   | 380     |  
|Less treasury stock, at cost - 29,194 shares (18,639 shares - 2003)                                                       |  |                   | (547    | ) |                   |   | (315    | )
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|Total Stockholders Equity                                                                                                |  |                   | 44,965  |   |                   |   | 43,895  |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  
|Total Liabilities and Stockholders Equity                                                                                |  | $                 | 424,234 |   |                   | $ | 409,138 |  
|                                                                                                                          |  |                   |         |   |                   |   |         |  



See
accompanying notes to consolidated financial statements.



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##### Table of Contents

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------- |  | ------------------------------------- | ----- | ---- | ------------------------------ | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                            |  | Three Months EndedSeptember 30,       |       |      | Nine Months EndedSeptember 30, |      
|                                                            |  | 2004                                  |       | 2003 |                                |       | 2004 |  |   | 2003   |  
|                                                            |  | (In thousands, except per share data) |      
|INTEREST INCOME                                             |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Loans receivable, including fees                            |  | $                                     | 4,845 |      | $                              | 4,746 |      |  | $ | 14,331 |   |  | $ | 13,509 |  
|Securities:                                                 |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Taxable                                                     |  |                                       | 486   |      |                                | 548   |      |  |   | 1,462  |   |  |   | 1,706  |  
|Tax-exempt                                                  |  |                                       | 152   |      |                                | 141   |      |  |   | 443    |   |  |   | 394    |  
|Federal Home Loan Bank dividends                            |  |                                       | 38    |      |                                | 37    |      |  |   | 110    |   |  |   | 112    |  
|Interest bearing deposits with banks                        |  |                                       | 9     |      |                                | 34    |      |  |   | 41     |   |  |   | 131    |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Total interest income                                       |  |                                       | 5,530 |      |                                | 5,506 |      |  |   | 16,387 |   |  |   | 15,852 |  
|INTEREST EXPENSE                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Deposits                                                    |  |                                       | 1,482 |      |                                | 1,460 |      |  |   | 4,340  |   |  |   | 4,299  |  
|Retail repurchase agreements                                |  |                                       | 1     |      |                                |      |      |  |   | 2      |   |  |   | 1      |  
|Advances from Federal Home Loan Bank                        |  |                                       | 807   |      |                                | 729   |      |  |   | 2,407  |   |  |   | 2,202  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Total interest expense                                      |  |                                       | 2,290 |      |                                | 2,189 |      |  |   | 6,749  |   |  |   | 6,502  |  
|Net interest income                                         |  |                                       | 3,240 |      |                                | 3,317 |      |  |   | 9,638  |   |  |   | 9,350  |  
|Provision for loan losses                                   |  |                                       | 100   |      |                                | 275   |      |  |   | 345    |   |  |   | 600    |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Net interest income after provision for loan losses         |  |                                       | 3,140 |      |                                | 3,042 |      |  |   | 9,293  |   |  |   | 8,750  |  
|NON-INTEREST INCOME                                         |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Service charges on deposit accounts                         |  |                                       | 498   |      |                                | 471   |      |  |   | 1,427  |   |  |   | 1,319  |  
|Commission income                                           |  |                                       | 58    |      |                                | 63    |      |  |   | 241    |   |  |   | 208    |  
|Gain on sale of securities                                  |  |                                       |      |      |                                |      |      |  |   |       |   |  |   | 51     |  
|Gain on sale of mortgage loans                              |  |                                       | 60    |      |                                |      |      |  |   | 97     |   |  |   | 14     |  
|Mortgage brokerage fees                                     |  |                                       | 33    |      |                                | 38    |      |  |   | 103    |   |  |   | 38     |  
|Other income                                                |  |                                       | 30    |      |                                | 13    |      |  |   | 107    |   |  |   | 59     |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Total non-interest income                                   |  |                                       | 679   |      |                                | 585   |      |  |   | 1,975  |   |  |   | 1,689  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|NON-INTEREST EXPENSE                                        |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Compensation and benefits                                   |  |                                       | 1,444 |      |                                | 1,228 |      |  |   | 4,288  |   |  |   | 3,475  |  
|Occupancy and equipment                                     |  |                                       | 264   |      |                                | 280   |      |  |   | 775    |   |  |   | 730    |  
|Data processing                                             |  |                                       | 201   |      |                                | 189   |      |  |   | 582    |   |  |   | 566    |  
|Other operating expenses                                    |  |                                       | 611   |      |                                | 560   |      |  |   | 1,763  |   |  |   | 1,670  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Total non-interest expense                                  |  |                                       | 2,520 |      |                                | 2,257 |      |  |   | 7,408  |   |  |   | 6,441  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Income before income taxes                                  |  |                                       | 1,299 |      |                                | 1,370 |      |  |   | 3,860  |   |  |   | 3,998  |  
|Income tax expense                                          |  |                                       | 443   |      |                                | 484   |      |  |   | 1,310  |   |  |   | 1,391  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Net Income                                                  |  | $                                     | 856   |      | $                              | 886   |      |  | $ | 2,550  |   |  | $ | 2,607  |  
|OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX               |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Unrealized gain (loss) on securities:                       |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Unrealized holding gains (losses) arising during the period |  |                                       | 650   |      |                                | (674  | )    |  |   | (169   | ) |  |   | (561   | )
|Less: reclassification adjustment                           |  |                                       |      |      |                                |      |      |  |   |       |   |  |   | (31    | )
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Other comprehensive income (loss)                           |  |                                       | 650   |      |                                | (674  | )    |  |   | (169   | ) |  |   | (592   | )
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Comprehensive Income                                        |  | $                                     | 1,506 |      | $                              | 212   |      |  | $ | 2,381  |   |  | $ | 2,015  |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Net income per common share, basic                          |  | $                                     | 0.31  |      | $                              | 0.32  |      |  | $ | 0.92   |   |  | $ | 0.97   |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  
|Net income per common share, diluted                        |  | $                                     | 0.30  |      | $                              | 0.32  |      |  | $ | 0.91   |   |  | $ | 0.96   |  
|                                                            |  |                                       |       |      |                                |       |      |  |   |        |   |  |   |        |  



See
accompanying notes to consolidated financial statements.



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##### Table of Contents

PART I - FINANCIAL INFORMATION

FIRST CAPITAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                  |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |        
|                                                                                  |  | 2004                           |         |   | 2003 |  
|                                                                                  |  | (In thousands)                 |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                                |         |   |      |   |         |  
|Net income                                                                        |  | $                              | 2,550   |   |      | $ | 2,607   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Amortization of premiums and accretion of discounts on securities                 |  |                                | 178     |   |      |   | 310     |  
|Depreciation and amortization expense                                             |  |                                | 606     |   |      |   | 516     |  
|Deferred income taxes                                                             |  |                                | 108     |   |      |   | 321     |  
|ESOP compensation expense                                                         |  |                                | 114     |   |      |   | 64      |  
|Stock compensation expense                                                        |  |                                | 53      |   |      |   | 53      |  
|Increase in cash value of life insurance                                          |  |                                | (31     | ) |      |   | (40     | )
|Provision for loan losses                                                         |  |                                | 345     |   |      |   | 600     |  
|Net gain on sale of securities available for sale                                 |  |                                |        |   |      |   | (51     | )
|Proceeds from sales of mortgage loans                                             |  |                                | 5,120   |   |      |   | 705     |  
|Mortgage loans originated for sale                                                |  |                                | (5,597  | ) |      |   | (691    | )
|Net gain on sale of mortgage loans                                                |  |                                | (97     | ) |      |   | (14     | )
|Stock dividends on Federal Home Loan Bank stock                                   |  |                                | (111    | ) |      |   | (76     | )
|Decrease in accrued interest receivable                                           |  |                                | 177     |   |      |   | 56      |  
|Increase (decrease) in accrued interest payable                                   |  |                                | 13      |   |      |   | (184    | )
|Net change in other assets/liabilities                                            |  |                                | 725     |   |      |   | 273     |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash Provided By Operating Activities                                         |  |                                | 4,153   |   |      |   | 4,449   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                                |         |   |      |   |         |  
|Net (increase) decrease in interest bearing deposits with banks                   |  |                                | (1,478  | ) |      |   | 17,583  |  
|Purchase of securities available for sale                                         |  |                                | (19,212 | ) |      |   | (26,077 | )
|Proceeds from maturities of securities available for sale                         |  |                                | 19,675  |   |      |   | 17,000  |  
|Proceeds from maturities of securities held to maturity                           |  |                                | 166     |   |      |   | 118     |  
|Proceeds from sale of securities available for sale                               |  |                                |        |   |      |   | 2,551   |  
|Principal collected on mortgage-backed securities                                 |  |                                | 3,423   |   |      |   | 9,280   |  
|Net increase in loans receivable                                                  |  |                                | (17,105 | ) |      |   | (14,906 | )
|Purchase of Federal Home Loan Bank stock                                          |  |                                | (425    | ) |      |   | (64     | )
|Proceeds from sale of Federal Reserve Bank stock                                  |  |                                |        |   |      |   | 180     |  
|Proceeds from sale of foreclosed real estate                                      |  |                                | 282     |   |      |   |        |  
|Purchase of premises and equipment                                                |  |                                | (330    | ) |      |   | (1,120  | )
|Net cash paid in acquisition of Hometown Bancshares, Inc.                         |  |                                |        |   |      |   | (5,726  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash Used By Investing Activities                                             |  |                                | (15,004 | ) |      |   | (1,181  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                                |         |   |      |   |         |  
|Net increase (decrease) in deposits                                               |  |                                | 9,587   |   |      |   | (1,229  | )
|Net increase in advances from Federal Home Loan Bank                              |  |                                | 4,007   |   |      |   | 21      |  
|Net decrease in retail repurchase agreements                                      |  |                                | (225    | ) |      |   | (386    | )
|Exercise of stock options                                                         |  |                                | 18      |   |      |   | 71      |  
|Purchase of treasury stock                                                        |  |                                | (232    | ) |      |   | (160    | )
|Dividends paid                                                                    |  |                                | (1,250  | ) |      |   | (1,103  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Cash Provided (Used) By Financing Activities                                  |  |                                | 11,905  |   |      |   | (2,786  | )
|                                                                                  |  |                                |         |   |      |   |         |  
|Net Increase in Cash and Due From Banks                                           |  |                                | 1,054   |   |      |   | 482     |  
|Cash and due from banks at beginning of period                                    |  |                                | 12,190  |   |      |   | 6,610   |  
|                                                                                  |  |                                |         |   |      |   |         |  
|Cash and Due From Banks at End of Period                                          |  | $                              | 13,244  |   |      | $ | 7,092   |  
|                                                                                  |  |                                |         |   |      |   |         |  



See
accompanying notes to consolidated financial statements.



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##### Table of Contents

FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | Presentation of Interim Information
|-- | -----------------------------------



First Capital, Inc. (the Company) is the holding company for First Harrison Bank (the 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 September 30, 2004, and the results of operations for the three and nine
months ended September 30, 2004 and 2003 and cash flows for the nine months ended September 30, 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.



|2. | Comprehensive Income
|-- | --------------------



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 and nine months ended September 30,
2004 and 2003:



|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------ |  | ------------------------------- | ----- | - | ------------------------------ | - | ------ | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                   |  | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |  
|                                                                   |  | 2004                            |       |   | 2003                           |   |        | 2004 |  |   | 2003 |  
|                                                                   |  | (In thousands)                  |      
|Unrealized gains (losses) on securities:                           |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|Unrealized holding gains (losses) arising during the period        |  | $                               | 1,076 |   |                                | $ | (1,116 | )    |  | $ | (280 | ) |  | $ | (929 | )
|Income tax (expense) benefit                                       |  |                                 | (426  | ) |                                |   | 442    |      |  |   | 111  |   |  |   | 368  |  
|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|Net of tax amount                                                  |  |                                 | 650   |   |                                |   | (674   | )    |  |   | (169 | ) |  |   | (561 | )
|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|Less: reclassification adjustment for gains included in net income |  |                                 |      |   |                                |   |       |      |  |   |     |   |  |   | (51  | )
|Income tax expense                                                 |  |                                 |      |   |                                |   |       |      |  |   |     |   |  |   | 20   |  
|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|Net of tax amount                                                  |  |                                 |      |   |                                |   |       |      |  |   |     |   |  |   | (31  | )
|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  
|Other comprehensive income (loss)                                  |  | $                               | 650   |   |                                | $ | (674   | )    |  | $ | (169 | ) |  | $ | (592 | )
|                                                                   |  |                                 |       |   |                                |   |        |      |  |   |      |   |  |   |      |  



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##### Table of Contents

FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|3. | Merger with Hometown Bancshares, Inc.
|-- | -------------------------------------



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.



|4. | Supplemental Disclosure for Earnings Per Share
|-- | ----------------------------------------------



|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|------------------------------------------------------- |  | ----------------------------------------------------------- | --------- | ----------------- | - | --------- |  | --------- | --------- |  | - | ---------
|                                                        |  | Three Months Ended                                          |           | Nine Months Ended
|                                                        |  | 9/30/2004                                                   |           | 9/30/2003         |   | 9/30/2004 |  | 9/30/2003
|                                                        |  | (Dollars in thousands, except for share and per share data)
|Basic                                                   |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Earnings:                                               |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Net income                                              |  | $                                                           | 856       |                   | $ | 886       |  | $         | 2,550     |  | $ | 2,607    
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Shares:                                                 |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Weighted average common shares outstanding              |  |                                                             | 2,774,524 |                   |   | 2,772,387 |  |           | 2,774,604 |  |   | 2,686,597
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Net income per common share, basic                      |  | $                                                           | 0.31      |                   | $ | 0.32      |  | $         | 0.92      |  | $ | 0.97     
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Diluted                                                 |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Earnings:                                               |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Net income                                              |  | $                                                           | 856       |                   | $ | 886       |  | $         | 2,550     |  | $ | 2,607    
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Shares:                                                 |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Weighted average common shares outstanding              |  |                                                             | 2,774,524 |                   |   | 2,772,387 |  |           | 2,774,604 |  |   | 2,686,597
|Add: Dilutive effect of outstanding options             |  |                                                             | 29,892    |                   |   | 29,402    |  |           | 32,216    |  |   | 31,674   
|Add: Dilutive effect of restricted stock                |  |                                                             | 2,939     |                   |   | 4,425     |  |           | 2,692     |  |   | 4,230    
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Weighted average common shares outstanding, as adjusted |  |                                                             | 2,807,355 |                   |   | 2,806,214 |  |           | 2,809,512 |  |   | 2,722,501
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          
|Net income per common share, diluted                    |  | $                                                           | 0.30      |                   | $ | 0.32      |  | $         | 0.91      |  | $ | 0.96     
|                                                        |  |                                                             |           |                   |   |           |  |           |           |  |   |          



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##### Table of Contents

FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|5. | Stock Option Plan
|-- | -----------------



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.



|                                                                                                                                            |  |                                       |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---- | - | ------------------------------ | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                                                            |  | Three Months EndedSeptember 30,       |      |   | Nine Months EndedSeptember 30, |  
|                                                                                                                                            |  | 2004                                  |      |   | 2003                           |   |      | 2004 |  |   | 2003  |  
|                                                                                                                                            |  | (In thousands, except per share data) |     
|Net income, as reported                                                                                                                     |  | $                                     | 856  |   |                                | $ | 886  |      |  | $ | 2,550 |   |  | $ | 2,607 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                       | (6   | ) |                                |   | (3   | )    |  |   | (17   | ) |  |   | (8    | )
|                                                                                                                                            |  |                                       |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Pro forma net income                                                                                                                        |  | $                                     | 850  |   |                                | $ | 883  |      |  | $ | 2,533 |   |  | $ | 2,599 |  
|                                                                                                                                            |  |                                       |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Earnings per share:                                                                                                                         |  |                                       |      |   |                                |   |      |      |  |   |       |   |  |   |       |  
|Basic - as reported                                                                                                                         |  | $                                     | 0.31 |   |                                | $ | 0.32 |      |  | $ | 0.92  |   |  | $ | 0.97  |  
|Basic - pro forma                                                                                                                           |  | $                                     | 0.31 |   |                                | $ | 0.32 |      |  | $ | 0.92  |   |  | $ | 0.97  |  
|Diluted - as reported                                                                                                                       |  | $                                     | 0.30 |   |                                | $ | 0.32 |      |  | $ | 0.91  |   |  | $ | 0.96  |  
|Diluted - pro forma                                                                                                                         |  | $                                     | 0.30 |   |                                | $ | 0.32 |      |  | $ | 0.91  |   |  | $ | 0.96  |  



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##### Table of Contents

FIRST CAPITAL, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|6. | Supplemental Disclosures of Cash Flow Information
|-- | -------------------------------------------------



|                                                                 |  |                                |       |      |   |       
|---------------------------------------------------------------- |  | ------------------------------ | ----- | ---- | - | ------
|                                                                 |  | Nine Months EndedSeptember 30,
|                                                                 |  | 2004                           |       | 2003
|                                                                 |  | (In thousands)                
|Cash payments for:                                               |  |                                |       |      |   |       
|Interest                                                         |  | $                              | 6,736 |      | $ | 6,458 
|Taxes                                                            |  |                                | 1,116 |      |   | 1,371 
|                                                                 |  |                               
|Noncash investing activities:                                    |  |                                |       |      |   |       
|Transfers from loans to real estate acquired through foreclosure |  |                                | 928   |      |   | 261   
|                                                                 |  |                               
|Acquisition of Hometown Bancshares, Inc. (Note 3)                |  |                                |       |      |   |       
|Assets acquired                                                  |  |                                |      |      |   | 96,885
|Liabilities assumed                                              |  |                                |      |      |   | 85,122
|                                                                 |  |                                |       |      |   |       
|Net assets acquired                                              |  | $                              |      |      | $ | 11,763
|                                                                 |  |                                |       |      |   |       
|Cash paid                                                        |  | $                              |      |      | $ | 5,626 
|Stock issued                                                     |  |                                |      |      |   | 6,137 
|                                                                 |  |                                |       |      |   |       
|Total purchase price                                             |  | $                              |      |      | $ | 11,763
|                                                                 |  |                                |       |      |   |       



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##### Table of Contents

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 to
$424.2 million at September 30, 2004 from $409.1 million at December 31, 2003, an increase of 3.7%. When compared to September 30, 2003, the asset growth was $25.2 million.



Net loans receivable (excluding loans held for sale) increased to $320.2 million at September 30, 2004 from $304.2 million
at December 31, 2003. The primary growth occurred in home equity lines of credit, increasing $6.0 million. Commercial loans and residential mortgages also increased $3.7 million and $2.8 million, respectively.



Securities available for sale decreased to $62.0 million at September 30,
2004 from $66.2 million at December 31, 2003. The Bank had purchases of $19.2 million offset by maturities of $19.7 million and principal payments of $3.3 million. The funds from the portfolio were used to help fund the previously-described loan
growth.



Cash and short-term investments increased to $16.1
million at September 30, 2004 from $13.6 million at December 31, 2003 due to a temporary increase in the balance of overnight funds held at the Federal Reserve.



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##### Table of Contents

PART I - ITEM 2



MANAGEMENTS DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY



Total deposits increased to $312.1 million at September 30, 2004 from $302.5 million at December 31, 2003, an increase of 3.2%. Checking and savings
accounts increased $13.4 million during the period while time deposits decreased $3.8 million. Hometown National Bank had a large number of customers with jumbo certificates and no other deposit relationship. The Bank made a strategic decision not
to 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 better managing interest expense by not paying a premium for
jumbo certificates without other deposit relationships.



Federal Home Loan Bank borrowings increased $4.0 million to $64.2 million at September 30, 2004. New advances of $19.2 million were partially offset by principal payments of $15.2 million.



Total stockholders equity increased $1.1 million to $45.0 million at
September 30, 2004 compared to $43.9 million at December 31, 2003. This was primarily the result of retained net income of $1.3 million offset by $232,000 in treasury stock purchases and a net unrealized loss of $169,000 on securities available for
sale.



Results of Operations



Net income for the nine-month periods ended September 30, 2004 and 2003.Net income was $2.6 million ($0.91 per share diluted) for the nine months ended September 30, 2004 compared to $2.6 million ($0.96 per share diluted) for the nine months ended September 30, 2003. The Company experienced increases in net interest
income after the provision for loan losses and noninterest income, offset by an increase in noninterest expenses.



Net income for the three-month periods ended September 30, 2004 and 2003.Net income was $856,000 ($0.30 per share diluted) for the three months
ended September 30, 2004 compared to $886,000 ($0.32 per share diluted) for the same period in 2003. Increases in net interest income after the provision for loan losses and noninterest income were offset by an increase in noninterest expenses.



Net interest income for the nine-month periods ended
September 30, 2004 and 2003.Net interest income increased to $9.6 million in 2004 from $9.4 million in 2003. This 3.1% increase was primarily due to an increase in earning assets offset by a decrease in the tax-equivalent interest rate spread.



Total interest income increased $535,000 to $16.4 million when
comparing the first nine months of 2004 to the same period in 2003. The average balance of interest-earning assets for 2004 was $388.2 million compared to $348.0 million for the prior year. The average tax-equivalent yield on these assets decreased
to 5.72% in 2004 from 6.16% in 2003 primarily due to continued refinancing of residential mortgages and, to a lesser extent, an increase in lower-yielding, adjustable-rate loans.



Total interest expense increased $247,000 during the nine months ended September 30, 2004 compared to the nine months ended
September 30, 2003 primarily due to an increase of $205,000 in interest on borrowed funds. The average balance of interest-bearing liabilities increased to $337.6 million in 2004 from $302.6 million in 2003 while the average rate on these
liabilities decreased to 2.67% in 2004 from 2.87% in 2003. As a result, the tax-equivalent interest rate spread decreased to 3.05% during the first nine months of 2004 from 3.29% for the same period in 2003.



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##### Table of Contents

PART I - ITEM 2



MANAGEMENTS DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY



Net interest income for the three-month periods ended September 30, 2004 and 2003.Net interest income decreased from $3.3 million for the three
months ended September 30, 2003 to $3.2 million for the same period in 2004 primarily due to a decrease in the tax-equivalent yield on interest-earning assets.



Total interest income increased $24,000 for the three months ended September 30, 2004 compared to the same period in 2003. The increase was caused by a
$19.6 million increase in the average balance of interest-earning assets offset by a decrease in the tax-equivalent yield on interest-earning assets to 5.74% during the three months ended September 30, 2004 compared to 6.00% for the same period in
2003.



Total interest expense increased $101,000 for the three
months ended September 30, 2004 compared to the same period in 2003. The average balance of interest-bearing liabilities increased to $339.3 million in 2004 from $324.4 million in 2003 while the average cost of these liabilities remained relatively
unchanged, decreasing to 2.69% in 2004 from 2.70% in 2003. As a result, the interest rate spread decreased to 3.05% in 2004 from 3.30% in 2003.



Provision for loan losses. The provision for loan losses was $345,000 for the nine-month period ended September 30, 2004 compared to $600,000 for
the same period in 2003. During 2004, gross loans receivable increased $16.0 million. A significant portion of that growth is attributable to a $3.0 million short-term loan to a local municipality for which the source of repayment is tax revenues.
Other significant increases include home equity lines of credit and commercial loans, increasing $6.0 million and $3.7 million, respectively. However, the consistent application of managements allowance methodology resulted in a decrease in
the provision for loan losses due to the lower levels of nonperforming loans at September 30, 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.



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##### Table of Contents

PART I - ITEM 2



MANAGEMENTS DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY



The allowance for loan losses was $2.4 million at September 30, 2004 and 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 September 30, 2004, nonperforming loans amounted to $4.1 million compared to $5.2 million at December 31, 2003. Included in nonperforming loans are loans over 90 days past due
secured by commercial mortgages in the amount of $809,000, residential mortgages of $564,000, consumer loans amounting to $23,000 and commercial loans of $17,000. These loans are accruing interest as the estimated value of the collateral and
collection efforts are deemed sufficient to ensure full recovery. At September 30, 2004, nonaccrual loans amounted to $2.7 million compared to $2.6 million at December 31, 2003.



Noninterest income for the nine-month periods ended September 30, 2004 and 2003. Noninterest income increased 16.9%
to $2.0 million for the nine months ended September 30, 2004 compared to $1.7 million for the nine months ended September 30, 2003. Service charges on deposits increased $108,000 when comparing the two periods, primarily due to an increase of 949
transaction accounts when comparing September 30, 2004 to September 30, 2003. Gains on the sale of loans and mortgage brokerage fees increased $83,000 and $65,000, respectively, when comparing the two periods.



Noninterest income for the three-month periods ended September 30, 2004
and 2003. Noninterest income for the quarter ended September 30, 2004 increased 16.1% to $679,000 compared to $585,000 for the quarter ended September 30, 2003. During this period in 2004, the Bank recognized gains of $60,000 on the sale of
mortgage loans. The Bank did not sell mortgage loans during the same period of 2003.



Noninterest expense for the nine-month periods ended September 30, 2004 and 2003. Noninterest expense increased 15.0% to $7.4 million for the nine months ended September 30, 2004 compared to $6.4 million for
the same period in 2003. Compensation and benefits increased $813,000 when comparing the two periods due to an increase in staff caused by three new offices, the two Hometown National Bank locations (see Note 3) and the new Jeffersonville, Indiana
office that opened in May 2003, and by a reduction in the deferral of direct loan origination costs. The low interest rates of 2003 and corresponding large number of mortgage refinancings led to a reduction of compensation and benefits expense of
$446,000 during the nine months ended September 30, 2003. For the same period in 2004, the Bank recorded deferrals of direct loan origination costs of $230,000 as the pace of loan originations declined.



Other operating expenses increased $93,000 during the nine months ended
September 30, 2004 compared to September 30, 2003. Charitable contributions and expenses on foreclosed property contributed $28,000 each to this increase.



Noninterest expense for the three-month periods ended September 30, 2004 and 2003. Noninterest expense increased 11.7% to $2.5 million for the
three months ended September 30, 2004 compared to $2.3 million for the same period in 2003. Compensation and benefits increased by $216,000 to account for the majority of this increase, primarily due to a $125,000 reduction in compensation and
benefit costs deferred in connection with loan originations.



Other operating expenses increased $51,000 when comparing the two periods. Expenses on foreclosed property and advertising fees increased $19,000 and $11,000, respectively.



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##### Table of Contents

PART I - ITEM 2



MANAGEMENTS DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FIRST CAPITAL, INC. AND SUBSIDIARY



Income tax expense. Income tax expense for the nine-month period ended September 30, 2004 was $1.3 million, compared to $1.4 million for the same
period in 2003. The effective tax rate decreased to 33.9% in 2004 from 34.8% in 2003 primarily due to an increase in tax-exempt income in 2004. Income tax expense for the three-month period ended September 30, 2004 was $443,000, compared to $484,000
for the same quarter in 2003. The effective tax rate was 34.1% for the third quarter 2004 compared to 35.3% for the same period in 2003.



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 September 30, 2004, the Bank had cash and
interest-bearing deposits with banks of $16.1 million and securities available-for-sale with a fair value of $62.0 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 September 30, 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 9.1%, 9.1% and 14.5%, respectively. The minimum regulatory requirements at that date were
1.5%, 3.0% and 8.0%, respectively.



Off-Balance Sheet Arrangements



In the normal course of operations, the Company engages
in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded on the Companys financial statements. These transactions involve, to varying degrees, elements of credit, interest rate
and liquidity risk. Such transactions are primarily used to manage customers requests for funding and take the form of loan commitments and letters of credit. A further presentation of the Companys off-balance sheet arrangements is
presented in the Companys Form 10-K for the year ended December 31, 2003.



For the three and nine months ended September 30, 2004, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Companys financial condition, results
of operations or cash flows.



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##### Table of Contents

PART I  ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC. AND SUBSIDIARY



Qualitative Aspects of Market Risk. The Banks principal financial objective is to achieve long-term profitability while reducing its exposure to fluctuating market interest rates. The Bank has sought to
reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. In order to reduce the exposure to interest rate fluctuations, the Bank has
developed strategies to manage its liquidity, shorten its effective maturities of certain interest-earning assets and decrease the interest rate sensitivity of its asset base. Management has sought to decrease the average maturity of its assets by
emphasizing the origination of short-term commercial and consumer loans, all of which are retained by the Bank for its portfolio. The Bank relies on retail deposits as its primary source of funds. Management believes retail deposits, compared to
brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.



Quantitative Aspects of Market Risk. The Bank does not maintain a trading account for any class of financial instrument nor does the Bank engage in
hedging activities or purchase high-risk derivative instruments. Furthermore, the Bank is not subject to foreign currency exchange rate risk or commodity price risk.



The Bank uses interest rate sensitivity analysis to measure its interest rate risk by computing changes in net portfolio
value (NPV) of its cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. NPV represents the market value of portfolio equity and is equal to the market value
of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase
or decrease in market interest rates with no effect given to any steps that management might take to counter the effect of that interest rate movement. Using data compiled by the OTS, the Bank receives a report that measures interest rate risk by
modeling the change in NPV over a variety of interest rate scenarios. This procedure for measuring interest rate risk was developed by the OTS to replace the gap analysis (the difference between interest-earning assets and
interest-bearing liabilities that mature or reprice within a specific time period).



The following tables are provided by the OTS and set forth the change in the Banks NPV at December 31, 2003 and June 30, 2004, based on OTS assumptions that would occur in the event of an immediate change in
interest rates, with no effect given to any steps that management might take to counteract that change. Due to the level of market interest rates over these time periods, the tables provide information for only a sustained 100 basis point decrease
in market interest rates. Given the timing of the release of this information by the OTS, information as of September 30, 2004 is unavailable for inclusion in this report.



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##### Table of Contents

PART I  ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

FIRST CAPITAL, INC. AND SUBSIDIARIES



|                |  |                        |        |               |                                                            |         |                |  |     |           |  |       |        |  |      |    
|--------------- |  | ---------------------- | ------ | ------------- | ---------------------------------------------------------- | ------- | -------------- |  | --- | --------- |  | ----- | ------ |  | ---- | ---
|                |  | At December 31, 2003   |       
|                |  | Net Portfolio Value    |        |               | Net Portfolio Value as aPercent of Present Value of Assets |        
|Change In Rates |  | Dollar Amount          |        | Dollar Change |                                                            |         | Percent Change |  |     | NPV Ratio |  |       | Change | 
|                |  | (Dollars in thousands) |       
|300bp           |  | $                      | 34,141 |               | $                                                          | (12,197 | )              |  | (26 | )%        |  | 8.60  | %      |  | (240 | )bp
|200bp           |  |                        | 38,863 |               |                                                            | (7,474  | )              |  | (16 | )         |  | 9.58  |        |  | (142 | )bp
|100bp           |  |                        | 43,158 |               |                                                            | (3,179  | )              |  | (7  | )         |  | 10.43 |        |  | (57  | )bp
|Static          |  |                        | 46,337 |               |                                                            |        |                |  |    |           |  | 11.00 |        |  |     | bp 
|(100)bp         |  |                        | 45,463 |               |                                                            | (874    | )              |  | (2  | )         |  | 10.70 |        |  | (30  | )bp
|                | 
|                |  | At June 30, 2004       |       
|                |  | Net Portfolio Value    |        |               | Net Portfolio Value as a Percent ofPresent Value of Assets |        
|Change In Rates |  | Dollar Amount          |        | Dollar Change |                                                            |         | Percent Change |  |     | NPV Ratio |  |       | Change | 
|                |  | (Dollars in thousands) |       
|300bp           |  | $                      | 38,103 |               | $                                                          | (13,177 | )              |  | (26 | )%        |  | 9.41  | %      |  | (253 | )bp
|200bp           |  |                        | 43,101 |               |                                                            | (8,179  | )              |  | (16 | )         |  | 10.43 |        |  | (151 | )bp
|100bp           |  |                        | 47,676 |               |                                                            | (3,604  | )              |  | (7  | )         |  | 11.31 |        |  | (64  | )bp
|Static          |  |                        | 51,280 |               |                                                            |        |                |  |    |           |  | 11.94 |        |  |     | bp 
|(100)bp         |  |                        | 51,648 |               |                                                            | 369     |                |  | 1   |           |  | 11.89 |        |  | (5   | )bp



The preceding tables
indicate that in the event of a sudden and sustained increase in prevailing market interest rates, the Banks NPV would be expected to decrease. The expected decrease in the Banks NPV is primarily attributable to the relatively high
percentage of fixed-rate loans in the Banks loan portfolio. At December 31, 2003 and September 30, 2004, approximately 71% and 69%, respectively, of the loan portfolio consisted of fixed-rate loans.



Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within its region were utilized in preparing the preceding table. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate
scenarios, among others.



As with any method of measuring
interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected
rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.



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##### Table of Contents

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 September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

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. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



The following table provides certain information with regard to shares repurchased by the company in the third quarter of 2004.



|                                       |  |                                   |  |                                |  |                                                                               |  |                                                                              
|-------------------------------------- |  | --------------------------------- |  | ------------------------------ |  | ----------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------
|Period                                 |  | (a) TotalNumberof SharesPurchased |  | (b) AveragePrice PaidPer Share |  | (c) TotalNumber of SharesPurchasedas Part ofPubliclyAnnouncedPlans orPrograms |  | (d) MaximumNumber of Shares that MayYet Be PurchasedUnder thePlans orPrograms
|July 1 through July 31, 2004           |  | 402                               |  | 20.50                          |  | 402                                                                           |  | 317,840                                                                      
|August 1 through August 31, 2004       |  | 2,025                             |  | 20.25                          |  | 2,025                                                                         |  | 315,815                                                                      
|September 1 through September 30, 2004 |  |                                  |  |                               |  |                                                                              |  | 315,815                                                                      
|Total                                  |  | 2,427                             |  | 20.29                          |  | 2,427                                                                         |  | 315,815                                                                      



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 the purchase of the maximum number of shares authorized under the program.



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



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##### Table of Contents

PART II

OTHER INFORMATION

FIRST CAPITAL, INC.



|        |  |                                                     |  |                                                                                                                                                     
|------- |  | --------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Item 3. |  | Defaults upon Senior Securities                    
|        | 
|        |  | Not applicable.                                    
|        | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders
|        | 
|        |  | Not applicable.                                    
|        | 
|Item 5. |  | Other Information                                  
|        | 
|        |  | None.                                              
|        | 
|Item 6. |  | Exhibits                                           
|        | 
|        |  | Exhibits                                           
|        |  |                                                    
|        |  | 3.1                                                 |  | Articles of Incorporation of First Capital, Inc. (1)                                                                                                
|        |  |                                                    
|        |  | 3.2                                                 |  | Second Amended and Restated Bylaws of First Capital, Inc. (6)                                                                                       
|        |  |                                                    
|        |  | 10.1                                                |  | Employment Agreement with James G. Pendleton (3)                                                                                                    
|        |  |                                                    
|        |  | 10.2                                                |  | Employment Agreement with Samuel E. Uhl (2)                                                                                                         
|        |  |                                                    
|        |  | 10.3                                                |  | Employment Agreement with M. Chris Frederick (2)                                                                                                    
|        |  |                                                    
|        |  | 10.4                                                |  | Employment Agreement with Joel E. Voyles (2)                                                                                                        
|        |  |                                                    
|        |  | 10.5                                                |  | Employee Severance Compensation Plan (3)                                                                                                            
|        |  |                                                    
|        |  | 10.6                                                |  | First Federal Bank, A Federal Savings Bank 1994 Stock Option Plan (as assumed by First Capital, Inc. effective December 31, 1998) (4)               
|        |  |                                                    
|        |  | 10.7                                                |  | First Capital, Inc. 1999 Stock-Based Incentive Plan (5)                                                                                             
|        |  |                                                    
|        |  | 10.8                                                |  | 1998 Officers and Key Employees Stock Option Plan for HCB Bancorp (5)                                                                             
|        |  |                                                    
|        |  | 10.9                                                |  | Employment Agreement with William W. Harrod (2)                                                                                                     
|        |  |                                                    
|        |  | 11.0                                                |  | Statement Regarding Computation of Per Share Earnings (incorporated by reference to Note 4 of the Unaudited Consolidated Financial contained herein)



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##### Table of Contents

PART II

OTHER INFORMATION

FIRST CAPITAL, INC.



|        |  |                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6. |  | Exhibits - (continued)                                                                                                                                                 
|        | 
|        |  | 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                                                                                                 
|        | 
|        |  | 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                                                                                                 
|        | 
|        |  | 32.1 Section 1350 Certification of Chief Executive Officer                                                                                                             
|        | 
|        |  | 32.2 Section 1350 Certification of Chief Financial Officer                                                                                                             
|        |  | (1)    Incorporated by
reference from the Exhibits filed with the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-63515.         
|        |  | (2)    Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31,
1999.                                                             
|        |  | (3)    Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended December 31,
1998.                                                       
|        |  | (4)    Incorporated by reference from the Exhibits filed with the Registration Statement on Form S-8, and any
amendments thereto, Registration Statement No. 333-76543.
|        |  | (5)    Incorporated by reference from the Exhibits filed with the Registration Statement on Form S-8, and any
amendments thereto, Registration Statement No. 333-95987.
|        |  | (6)    Incorporated by reference to the Annual Report on Form 10-KSB for the year ended December 31,
2001.                                                             



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##### Table of Contents

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.



|                        |  |                     |  |                                             
|----------------------- |  | ------------------- |  | --------------------------------------------
|                        |  | FIRST CAPITAL, INC.
|                        |  | (Registrant)       
|                        |  |                    
|Dated November 12, 2004 |  | BY:                 |  | /s/ William W. Harrod                       
|                        |  |                     |  | William W. Harrod                           
|                        |  |                     |  | President and Chief Executive Officer       
|                        |  |                     |  | (Principal Executive Officer)               
|                        |  |                    
|Dated November 12, 2004 |  | BY:                 |  | /s/ Michael C. Frederick                    
|                        |  |                     |  | Michael C. Frederick                        
|                        |  |                     |  | Senior Vice President and Treasurer         
|                        |  |                     |  | (Principal Financial and Accounting Officer)



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