FCAP · First Capital, Inc.

Profitability Growth Driven by Loan Yield Improvements

Interest Rate Risk and Liquidity Governance

To limit exposure to interest rate fluctuations, the Company has implemented structured risk management strategies, including active liquidity management, shortening effective maturities of select interest-earning assets, and reducing the interest rate sensitivity of its overall asset base. The Company supplements standard rate sensitivity monitoring with Economic Value of Equity (EVE) analysis to evaluate the full impact of interest rate shifts on earnings and capital levels. Its formal Liquidity Management Policy mandates regular liquidity stress testing and maintains a formal contingency funding plan to address unforeseen cash flow needs, including loan demand, deposit withdrawals, and operating expense payments.

Credit Loss Valuation Framework

The Company uses an Allowance for Credit Losses (ACL) as a valuation account deducted from an asset’s amortized cost basis to present the net amount expected to be collected on the asset. Qualitative adjustments to expected credit loss estimates for collectively evaluated loans reflect management’s forward-looking assessment of how current loss expectations may deviate from historical loss experience, supporting accurate reserve sizing and capital planning.