FIRST CAPITAL INC (FCAP) stock intrinsic value fair value estimate & owner earnings analysis

First Capital, Inc. owns First Harrison Bank, a community bank based in Corydon, Indiana. Its offices are in Harrison, Floyd, Clark and Washington counties in southern Indiana and in Bullitt County, Kentucky, which it entered by buying Peoples Bancorp of Bullitt County in December 2015. At June 30, 2026 it had $1.29 billion of assets, $679 million of loans, $407 million of available-for-sale bonds, $1.14 billion of deposits and $142.5 million of shareholders' equity. It had no borrowed money. It earns the spread between what its loans and bonds yield and what it pays depositors, plus modest fees from selling home mortgages and from deposit accounts. How we measure earnings. We start from the cash the bank's operations produce and remove short-term timing swings, the cost of stock awards and the spending needed to keep branches and systems running. Three items show up as non-cash on the income statement but are real costs for a bank, so we charge them: provisions for loan losses, the premiums paid for bonds bought above face value, and the cost of the bank's tax-credit investments ($3.2 million in 2025). On this basis owner earnings per share were $3.48 in 2021, $3.79 in 2022, $3.80 in 2023, $3.61 in 2024 and $4.51 in 2025. Reported earnings per share were $4.89 in 2025. Because a bank's lenders are its depositors and interest is its main operating cost, we value earnings after interest and subtract no debt. The earnings level. The 2021-2025 median of $3.79 spans a full rate cycle, from near-zero rates through the 2022-2024 squeeze on deposit costs. It understates the bank as it stands now, and the evidence is in the filings rather than in a forecast. Bonds bought at about 2% yields are maturing and being reinvested at higher rates. Net interest income rose from $35.8 million in 2024 to $42.2 million in 2025, then to $23.5 million in the first half of 2026, up 17.6% from $20.0 million a year earlier. Net income of $4.9 million in the fourth quarter of 2025, $4.3 million in the first quarter of 2026 and $4.8 million in the second quarter of 2026 is three corroborating quarters at a higher level. Owner earnings grew 25% in 2025. Our base case assumes 12% for 2026, to about $5.05 per share, below that trailing rate. Base case (about $91 per share). The remaining low-yield bonds keep repricing through 2029, adding about $0.45 per share and taking owner earnings to about $5.50. We credit only part of the gap between old and new yields, because rate cuts are already lowering what the bank earns on its large cash balance. We credit no growth in loan or deposit volume, since that depends on the local economy and on winning share. Earnings then hold at about $5.50. What sustains them is the bank's low-cost, long-standing deposit base and its leading deposit share in Harrison and Bullitt counties, not assumed growth. The business is worth about $91 per share, owes nothing outside its deposits, and a small outside stake in a subsidiary (about $0.03 per share) is deducted, so the shares are worth about $91. Bear case (about $63 per share). Falling rates and deposit competition take back the repricing gain, and owner earnings slide from about $4.90 in 2026 to $3.90 by 2028, the level of the 2022-2024 squeeze. Then a credit downturn like the one this bank actually went through in 2008-2010 arrives. In 2009 its loan-loss provision jumped to $4.3 million from $1.6 million in 2008, about 1.4% of its $316 million loan book, nonperforming loans rose from $5.5 million to $9.5 million, and net income fell from $3.6 million to $0.8 million. Applied to today's $679 million book, that is roughly $9 million of provisions in one year against about $1 million normally. That halves one year's owner earnings to about $1.95, recovers over two years and settles at $3.80. Equity of about 11% of assets absorbs this without new shares, so we assume no dilution. The business is worth about $63 per share and owes nothing ahead of shareholders, so the shares are worth about $63. That is above tangible book value of about $41 per share. The difference is justified because the deposit franchise kept the bank profitable through 2009, its worst year on record, and it never needed outside capital. Bull case (about $110 per share). The full repricing gain comes through, taking owner earnings to about $6.10 by 2028. Loans and deposits then grow about 3% a year, the bank's recent loan growth pace, for seven years. We deduct the capital the bank must retain to support that growth from what owners receive. Earnings hold at about $7.50 per share after 2035. The shares are worth about $110. What changed since our previous estimate. Our base estimate is a little lower and our bear estimate is lower, because the bear case now includes a full credit downturn sized from the bank's own 2009 experience rather than only a slower margin. The base and bull paths are close to before. What could make us wrong. A sharp fall in rates would squeeze the margin, because part of the bank's assets reprice quickly while deposit costs have little room to fall. A regional downturn would hit a loan book concentrated in five counties. Losing low-cost deposits, as in 2023 when deposits fell, would force the bank to borrow at market rates. On the other side, the bank holds capital above what it needs, which we have not counted as extra value. We could not rebuild the bond maturity schedule year by year from the filings, so the pace of repricing is estimated from recent maturities. Margin-of-safety price. We are fairly confident in an earnings level between $4.50 and $5.50 a share. It rests on three corroborating quarters and a bond book whose repricing is mechanical, but it moves with rates. The worst plausible outcome is a regional credit downturn coinciding with falling rates. A bank with 11% equity, no borrowings and a granular local deposit base comes through that with a few lean years rather than a loss of capital, as it did in 2009. If we are wrong about both the repricing and credit at once, the shares are worth about $60-65. The bank pays a $1.24 annual dividend during the holding period. At about $58, the price sits below the value of even the downturn case. The dividend is over 2% of that price and earnings of $5 a share are being retained. Over an assumed holding period of three or four years, the base case implies a move toward the base value of roughly 20% a year, and the bear case implies a few years of lower earnings rather than a permanent loss of value. The margin-of-safety price is about $58.