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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] For the fiscal year ended December 31, 1996
or
[ ] For the transition period from ...........to...........
Commission File number 2-26080
CAPITAL BANCORP
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(Exact name of registrant as specified in its charter)
Florida 59-2160717
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Brickell Avenue, Miami, Florida 33131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 536-1500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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(Title of class)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 25, 1997, the aggregate market value of the shares of the
Registrant's Common Stock held by non-affiliates of the Registrant was
$110,656,148. (This number is based on reported beneficial ownership by all
directors and executive officers of the Registrant and holders of 5% or more of
the Registrant's Common Stock. This determination does not, however, constitute
an admission of affiliate status for any of these individual shareholders).
As of March 25, 1997, the Registrant had outstanding 7,560,741 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
History
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Capital Bancorp ("Bancorp") is a bank holding company registered pursuant to the
provisions of the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"), and conducts its operations primarily through its wholly
owned banking subsidiary, Capital Bank (also referred to herein as the "Bank"),
and commercial factoring subsidiary, Capital Factors Holding, Inc. ("Factors
Holding"). Bancorp and its subsidiaries are collectively referred to as the
"Company." Bancorp, which was organized under the laws of the State of Florida
in April 1981, may engage, either directly or through its subsidiary
corporations, in activities which are permitted under the Bank Holding Company
Act.
Bancorp owns all of the outstanding Common Stock of the Bank, which was
organized in 1974 as a commercial bank chartered under the laws of the State of
Florida. The Bank operates from a main office located at 1221 Brickell Avenue,
Miami, Florida, and at 28 branch offices located in Dade, Broward and Palm
Beach, Florida counties.
In June 1994, Capital Factors, Inc. ("Capital Factors"), previously a
wholly-owned subsidiary of the Bank, completed a reorganization in which Factors
Holding was formed as a holding company for Capital Factors. The Bank exchanged
100% of its Capital Factors stock for 100% of Factors Holding stock. In the
third quarter of 1996, Factors Holding completed an initial public offering of
newly issued Common Stock, whereby approximately 19% of its Common Stock was
sold to the general public and the Bank retained approximately 81% of the
post-offering shares outstanding. Capital Factors is based in Ft. Lauderdale,
Florida and operates regional offices in Los Angeles, California, New York, New
York and Charlotte, North Carolina, which were opened in 1989, 1990 and 1995,
respectively. In addition, in January 1997, Capital Factors opened a limited
service office in Atlanta, Georgia.
Business
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The Company operates in two distinct lines of business, commercial banking and
factoring. The commercial banking activities include domestic and foreign
activities. Generally, the Bank originates loans for its own account. From time
to time the Bank may purchase loans from other lenders, subject to the Bank's
normal underwriting standards. Also, from time to time the Bank may sell loans
to other lenders to mitigate risk concentrations or manage liquidity. Generally,
loans purchased or sold are without recourse. The following discussion describes
the nature of activities conducted in each of the Company's major lines of
business. See Table 9 in Item 8 hereof for a summary of operating results and
identifiable assets.
In its domestic banking activities, Capital Bank offers checking and other
deposit services, makes commercial, installment and real estate loans, transmits
funds, rents safe deposit boxes, offers brokerage and investment services,
conducts certain trust services and performs such other banking services as are
usual and customary for banks of similar size and nature in the South Florida
area.
In addition to its main office in the Miami financial district, Capital Bank has
twenty-seven branch offices in Dade, Broward and Palm Beach counties. The branch
offices are primarily engaged in the delivery of retail banking products and
services to customers.
The Bank's domestic lending activities primarily involve small and middle market
commercial borrowers, builders of residential real estate, owners of commercial
or income-producing real estate, and consumers. The Bank generally does not
provide long-term permanent financing for owner-occupied residential real
estate. The following is a discussion of each of the Bank's significant areas of
domestic lending activity.
Commercial. Commercial loans are made to borrowers in manufacturing, retail and
service industries. Generally, these loans are secured by business assets, such
as inventory, accounts receivable or equipment. Other forms of collateral
acceptable to the Bank may also be obtained. Loans are generally limited to
50-80% of collateral value, but may be as high as 100% of collateral value if
the collateral is cash or near-cash and controlled by the Bank. Unsecured loans
may also be made if the creditworthiness of the borrower supports it.
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Real Estate Construction. Construction loans are made to developers or
owner/users of specific projects operating in the Bank's business market,
including single or multi-family residential properties, commercial rental
property, or owner-occupied industrial properties. First mortgages are generally
obtained and maximum loan to value ratios may range from 50% for land
acquisitions to 75% for active developments, subject to other underwriting
considerations such as pre-sales. Construction loans are typically three years
or less in term.
Real Estate Mortgage. Permanent mortgage financing is provided for
multi-family residential and commercial properties. First mortgages on
multi-family residential, income producing commercial and owner/user industrial
properties may be granted for five to 10 year terms, with balloon payments at
maturity. Projected cash flows are a significant consideration in underwriting
these loans. Furthermore, maximum loan to value ratios are 75-80%.
Consumer. The Bank makes installment loans, secured and unsecured consumer
credit lines and issues credit cards. Installment loans, primarily to purchase
automobiles, represent approximately 80% of total consumer loans. Credit lines
represent approximately 16% and credit cards represent less than 4%. Installment
loans are primarily originated indirectly through the Bank's arrangements with
local automobile dealers. However, they may also be originated directly by the
Bank. In either case, underwriting and approval is done centrally by the Bank.
The borrower's maximum debt to income ratio is generally limited to 50% and may
be lower depending on credit history. Secured credit lines are generally related
to first or second mortgages on owner-occupied residential properties. Credit
lines are generally open-ended, requiring 2% monthly payments.
Indirect automobile financing represents consumer installment debt generally of
24 to 60 month terms, secured by new or used automobiles. Initial applications
for these loans are taken from potential car buyers by automobile dealers,
subject to the Bank's underwriting standards. The Bank maintains final approval
authority over all applications for these loans. Indirect automobile financing
presents risks typical of consumer automobile financing, including competitive
pressures that may influence the interest rates charged by the Bank as well as
the ability to originate new loans, and potential losses due to non-payment or
collateral deficiencies. These risks are influenced most heavily by underwriting
standards as well as general economic trends.
The Company's commercial, real estate and consumer loans are susceptible to
negative business conditions of the borrower and thus are continually monitored
by the Bank. Commercial loans are generally made for shorter terms and at higher
interest rates, but are subject to the risk of borrower default and of
collateral that may be more difficult to liquidate and more likely to decline in
value. Loans secured by commercial properties are generally larger and, because
payments are often dependent on the successful operation or management of the
properties, repayment for such loans may be subject to adverse conditions in the
real estate market or the economy. If the cash flow from the project is reduced
(for example, if leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired. In addition, adjustable-rate commercial real
estate loans are subject to increased risk of delinquency or default as interest
rates increase. The Company has attempted to minimize these risks through its
underwriting standards, including collateral inspection, review of current
financial reports of the borrowers and other measures.
Construction loans made to borrowers other than the owner-occupants also involve
many of the same risks discussed above regarding commercial real estate loans
and tend to be more sensitive to general economic conditions than many other
types of loans. Because of the uncertainties inherent in estimating construction
costs and the market for the project upon completion, it is relatively difficult
to evaluate accurately the total loan funds that would be required to complete a
project, the related loan-to-value ratios, and the likelihood of the ultimate
success of a project.
The Bank's International Division is engaged primarily in financing the
exportation of goods to, and the importation of foreign goods principally from,
countries in Latin America and, to a lesser extent, countries in Europe and the
Far East. The International Division is also engaged in the refinancing of
trade-related credits for foreign banks and lends primarily to banks and other
financial institutions located in foreign countries. Such loans arise typically
from short-term trade finance transactions and are unsecured. However,
offsetting cash deposit balances may be obtained when warranted. Financial
statements of foreign borrowers are subjected to analysis and review annually,
and interim period financial information is obtained whenever possible.
Additionally, studies are made of borrowers' home countries, including economic
and political trends,
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quality and scope of local regulation and supervision, and other matters. Loans
may also be made to non-financial borrowers, subject to cash collateral.
Currently, most of the Company's international lending activities are with Latin
American countries. As with international activities generally, risks arise from
the sometimes volatile and extreme economic uncertainty and political
environments of the borrower's home country. However, industry-wide credit
losses associated with trade-related foreign lending have traditionally been
low, resulting in lower interest rates charged on such loans than on non-trade
foreign lending and some forms of domestic lending. Notwithstanding this
history, however, unforeseen circumstances may arise, resulting in losses in
excess of historical experiences. Management attempts to mitigate the risks
associated with its international activities through frequent personal visits,
overall borrower and country lending limits and other actions.
Through its Capital Factors' offices in New York, Los Angeles, Ft. Lauderdale,
Charlotte and Atlanta, the Company provides factoring and other specialized
commercial financial services to small and medium-size companies. Capital
Factors purchases accounts receivable from its clients pursuant to factoring
agreements which are executed with each client. Capital Factors' clients
primarily include manufacturers, importers, wholesalers and distributors in the
apparel and textile-related industries and, to a lesser extent, clients in
consumer goods-related industries. More recently, Capital Factors has provided
services to companies in the healthcare industry. Accounts receivable purchased
are due from the clients' customers which are retailers, manufactures and
distributors geographically located throughout the United States.
Accounts receivable are generally purchased on a non-recourse (to the client)
basis. Capital Factors guarantees the collection of each client's pre-approved
receivables or receivables from each client's customers with pre-approved credit
lines. Payment for most receivables is made to the client after collection from
the client's customer. If the receivable is not paid based solely on the
customer's financial inability to pay, payment is made to the client within 120
days after the due date of the receivable. Capital Factors is not obligated to
pay the client if the customer fails to pay for any reason other than its
financial inability, such as a dispute regarding defective merchandise. Pursuant
to the factoring agreements, Capital Factors is typically appointed the client's
sole factor for all accounts receivable, and customers are notified to remit all
payments to Capital Factors.
Many factoring agreements provide that Capital Factors may make advances to the
client prior to the contractual payment date and satisfy such advances from
receivables collections. Such advances bear interest at prime plus 1% to 4% (in
addition to any factoring fee) and are payable on demand. Advances are generally
limited to 75% to 90% of outstanding accounts receivable purchased from the
client. Advances may sometimes be made to some clients in excess of such
client's receivables. These overadvances may be secured by a client's inventory,
other assets and/or personal guarantees or they may be unsecured. Advances are
generally satisfied from receivables collections.
The quality of the accounts receivable purchased represents Capital Factors
primary safeguard against credit losses. Accordingly, Capital Factors conducts
an extensive financial and business analysis on a client prior to entering into
a factoring arrangement, and on a client's customers prior to extending credit
lines for a customer. The analysis focuses on such items as the age of
receivables, the diversity of the client's customer base and the quality and
character of management and owners. Additionally, Capital Factors conducts field
examinations prior to signing the client as well as periodically during the term
of the factoring agreement. Account officers are assigned to each client to
monitor the quality of receivables, the prospects of the client and other
matters in order to further mitigate credit risk.
Capital Factors began to expand its asset-based lending in late 1994. At
December 31, 1996, such loans ranged from $200,000 to $7.2 million and are
primarily secured by accounts receivable and, to some extent, inventory. Unlike
most of Capital Factors' factoring activities, ownership of the receivable
remains with the client and Capital Factors does not guarantee collection. In
underwriting these loans, Capital Factors focuses on the borrowers' financial
stability and creditworthiness. Capital Factors also conducts periodic field
examinations of these clients' records. The risks associated with asset-based
lending are similar to those involved in Capital Factors' traditional factoring
activities and primarily involve the credit quality of the receivables accepted
as collateral. The experience in monitoring receivables that Capital Factors has
gained through its traditional factoring activities is beneficial in managing
this activity.
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The financial failure of clients or their customers may adversely affect Capital
Factors' ability to fully recover amounts due under either the accounts
receivable purchased or advances made to clients under factoring arrangements.
There is additional risk in purchasing fraudulent receivables and in the
dilution of receivables. Dilution of receivables occurs when such receivables
are not fully collectable for reasons other than the client's financial
inability to pay (such as disagreements as to the quality of goods shipped).
Capital Factors, as well as the factoring industry in general, has historically
experienced and expects to continue to experience seasonal fluctuations in its
factored sales volume and factoring fees, which generally have been higher
during the period from August through November. A principal reason for the
fluctuation is the seasonality in the sales of certain of Capital Factors'
clients, especially those in the apparel industry who typically ship more goods
during such four-month period in order to fill increased customer orders in
anticipation of the "back-to-school" and the ensuing holiday season. Historical
experience indicates that Capital Factors' factored sales volume is at its
lowest during the period from December through February. Although currently a
large percentage of its clients are in the apparel industry, Capital Factors is
attempting to mitigate the effect of seasonal fluctuations through the
introduction of its healthcare financing services.
At December 31, 1996, the Company and its subsidiaries employed approximately
821 full time employees, including 447 in domestic banking, 47 in the
International Division, 275 at Capital Factors and 52 in general corporate and
other areas. The Company believes that its relationship with employees is
satisfactory.
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Primary Market Areas
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The Company's primary market areas include the three-county area of South
Florida for domestic banking, Central and South America for international
banking and the entire United States for factoring.
The Bank operates 28 branch offices in Dade (19), Broward (6) and Palm Beach (3)
counties in Florida. These counties have a combined population in excess of
4,000,000 people and include Miami, Fort Lauderdale and West Palm Beach as the
leading cities. Each of these counties share some common economic
characteristics, primarily driven by population growth. The counties also have
some unique characteristics influencing economic trends. Dade has a relatively
mature economy; however, it is major center for international trade and tourism.
Palm Beach is a center of wealth, offset by a concentration of agricultural
jobs. Broward, at the geographic center of the three county area, benefits from
this central location, as reflected in its more rapid population growth.
Due to its geographic location, Miami is considered a gateway to Latin America.
The Company's international trade finance activity is primarily conducted with
banks and other financial institutions in Latin America and is thus influenced
by the economic trends in that region. Economic growth in Latin America was
estimated at 0.6% in 1995, compared to an average of 3.6% for 1991 through 1994.
The economies of Mexico and Argentina experienced declines in gross domestic
product in 1995 due to high levels of unemployment caused by recessionary
environments. These declines were offset by an estimated growth in gross
domestic product of 5% in Brazil, the region's largest economy. Capital Factors
conducts business with clients located in several of the country's leading
factoring centers, including, New York, Los Angeles and Charlotte. Customers of
those clients, who are responsible for the payment of receivables that Capital
Factors purchases, are located geographically throughout the United States. A
substantial number of these customers are retailers, thus Capital Factors'
operations can be influenced by trends in the overall national economy,
especially retail sales.
Competition
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Banking in South Florida, as elsewhere, is a highly competitive industry. The
Bank competes with other banks and thrifts in obtaining new deposits, making
loans, establishing rates of interest on loans and savings and time deposits,
and providing other financial services. Competition also exists with non-bank
institutions engaged in the business of making loans or accepting deposits or
investments, such as mutual funds, insurance companies, small loan companies,
credit unions, finance companies, factoring companies and certain governmental
agencies.
In South Florida, commercial banking is carried on by small to medium-sized
local banks and thrifts, by a few large multistate banks, and by a relatively
large number of foreign banks and Edge Act corporations. The ability of local
banks to effectively compete is restricted by regulations which limit loan
amounts to a percentage of each bank's adjusted capital and surplus. While the
financial industry consolidation has reduced the number of banks and savings and
loans competing in the South Florida market, the ability of local banks to
compete has been affected by increased competition from out-of-state financial
institutions that have acquired the assets and deposits of local financial
institutions. At this time, the Company does not believe this consolidation
trend has had a significant effect on its ability to conduct business
operations. However, the Company cannot predict the future effect of this trend.
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Capital Factors also competes with numerous banks, financial institutions,
commercial finance companies and other factoring companies with greater
financial and other resources than Capital Factors. The four largest factors in
the United States, CIT Group, BNY Financial Corp., NationsBanc Commercial and
Heller Financial, control approximately 61% of the factored sales volume in the
United States, as compared to 4% of United Sates factored sales volume for
Capital Factors in 1996, according to a recent survey. Capital Factors competes
with the largest national factors, as well as other national factors and also
competes with regional factoring companies, all of whom target similar clients
and most of whom have operated in the markets serviced by Capital Factors for a
longer period of time than Capital Factors. Certain factoring companies compete
with Capital Factors for certain types of accounts. For example, one factor may
provide services only to textile mills, while another may provide services only
to furniture manufacturers. Capital Factors competes primarily on the basis of
service, not price, even with respect to higher volume clients to whom Capital
Factors may provide lower fee structures than to its typical clients. Capital
Factors generally does not seek to compete when price is the sole or primary
criterion for potential clients' selection of a factoring company. Future
competition is expected to be based primarily on the quality of service provided
and the ability to respond to the changing credit environment and demands of
many factoring clients. Capital Factors believes that it is well positioned to
respond to these needs.
Supervision and Regulation
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The following discussion summarizes the statutes and regulations that materially
affect the Company, Capital Bank, their subsidiaries, including Capital Factors.
The descriptions of such statutes and regulations and the effects thereof set
forth below and elsewhere in this Form 10-K do not purport to be complete
descriptions of such statutes and regulations and their effects. This discussion
also does not purport to identify every statute and regulation that may apply to
the Company.
Recent Legislative and Regulatory Developments
Legislative and Regulatory Proposals. In recent years, measures have been
taken to reform the banking industry and, more recently, further proposals have
been announced by the Clinton administration, members of U.S. Congress, industry
trade groups and the federal bank regulators that, if adopted, would have
additional significant effects on the banking industry. These recent proposals
and the recently enacted banking legislation are described briefly below.
Various proposals to further reform the banking industry are currently under
discussion and review. If adopted, these proposals would, among other things,
(i) expand the powers of bank holding companies to engage in securities
activities, insurance and other business activities through the repeal or reform
of the Glass-Steagall Act and (ii) restructure the federal regulatory agencies
responsible for overseeing financial institutions. Because these proposals are
in their formative stages, it is not possible at this time to assess the
likelihood of their adoption, or if adopted, to assess their expected impact on
the Company and Capital Bank.
Deposit Insurance Reform. Under current law, the Federal Deposit Insurance
Corporation (the "FDIC") is required to increase and maintain the reserves of
both the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") to 1.25% of insured deposits. The BIF, which insures the Bank's
deposits, has reached the required reserve level. In November 1995, the FDIC
formally announced the elimination of deposit insurance premiums for most
members of the BIF, including the Company. Accordingly, the Company now pays no
assessment fee (although it paid a minimum assessment fee of $2,000 in 1996) as
compared to approximately $1.5 to $2.0 million it was required to pay annually
prior to such announcement.
In September 1996, Congress passed the Deposit Insurance Funds Act (the "DIFA")
which required a one-time assessment of 65.7 cents for every $100 in deposits
against all SAIF-insured institutions in order to immediately increase the SAIF
reserve levels. The one-time assessment fee was collected in November 1996 and,
effective January 1, 1997, a new assessment schedule was put into place for SAIF
institutions with assessments ranging from 4 basis points for the most
well-capitalized thrifts to 31 basis points.
In addition, the DIFA required that banks and thrifts share in the approximately
$780 million in annual interest payments on the Financing Corp. ("FICO") bonds
until they mature in 2017. The FICO bonds were issued in the late 1980s to help
pay for the savings and loan industry clean up. Banks insured by BIF, including
Capital Bank, will pay roughly $322 million annually toward FICO interest from
1997 through 1999, while SAIF-insured institutions will pay
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approximately $458 million annually. From 2000 through 2017, banks and thrifts
will all pay 2.43 center per $100 of deposits. The Company's current payment
pursuant to the FICO assessment totals approximately $120,000 annually. The DIFA
also requires the merger of the BIF and SAIF on January 1, 1999, if there are no
thrifts in existence on that date.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act"). The Riegle-Neal Act introduced a process that enabled
nationwide interstate banking through bank subsidiaries and interstate bank
mergers. Separately the Riegle-Neal Act also permitted bank subsidiaries to act
as agents for each other across state lines. Effective September 29, 1995, the
bill allowed adequately capitalized and managed bank holding companies to
acquire control of a bank in any state. Any acquisitions are subject to
concentration limits. Beginning June 1, 1997, banks will be permitted to merge
with one another across state lines; however, a state could authorize such
mergers earlier. In contrast, a state also could choose to opt-out of interstate
branching by enacting legislation before June 1, 1997. The legislation preserves
state laws which require that a bank must be in existence for a minimum period
of time before being acquired as long as the requirement is five years or less.
This legislation has immediate relevance for the banking industry due to
increased competitive forces from institutions which may consolidate through
mergers and those which may move into new markets through enhanced opportunities
to branch across state lines.
Florida Interstate Banking Acts. In 1994, the State of Florida amended the
Regional Reciprocal Banking Act of 1984 and the Florida Reciprocal Banking Act
(the "Florida Acts"), which regulate the acquisition of Florida banks and bank
holding companies. Under prior law, only bank holding companies from certain
enumerated southeastern states were allowed to acquire Florida banks and bank
holding companies. However, pursuant to the 1994 amendments, a bank holding
company that is located in any state in the United States that affords
reciprocity to Florida bank holding companies, and meets certain other criteria,
may acquire Florida banks or Florida bank holding companies.
Bank Holding Company Regulation
Bancorp is a bank holding company under the Bank Holding Company Act (the
"BHCA") and is subject to the regulations, examination, supervision and
reporting requirements of the Board of Governors of the Federal Reserve System
(the "Federal Reserve"). The Federal Reserve may impose restrictions on a
holding company when it determines that there is reasonable cause to believe
that the continuation of any particular activity constitutes a serious risk for
the financial safety, soundness or stability of the holding company's subsidiary
bank.
Regulatory Capital Requirements. The Federal Reserve has adopted guidelines
for the implementation of risk-based capital requirements for bank holding
companies. The guidelines revised the definition of capital and established
minimum capital standards in relation to assets and off-balance sheet exposures
as adjusted for credit and other risks. Total capital is divided into two tiers.
Tier one capital is composed of common stockholders equity, certain perpetual
preferred stock and minority interest in the equity accounts of consolidated
subsidiaries. Goodwill and certain intangible assets are deducted from tier one
capital. Tier two capital generally includes the Company's allowance for loan
losses. For purposes of meeting the capital tests, tier two capital cannot
exceed 100% of tier one capital. In addition, the amount of the allowance for
loan losses includable in tier two capital is limited to 1.25% of total
risk-weighted assets, as defined. The risk-based capital guidelines require that
the Company meet minimum ratios of capital to risk-weighted assets of 4% and 8%
for tier one capital and total risk-based capital (tier one and tier two),
respectively.
The Federal Reserve has also adopted leverage ratio capital guidelines to
complement the risk-based capital ratio requirement. Under the guidelines, the
Company is required to maintain a minimum ratio of capital, defined to equal the
tier one capital described above, to average quarterly assets of 3% or such
higher level as may be required by the Federal Reserve. The Company has not been
directed to maintain a leverage ratio higher than the minimum level. However,
the Federal Reserve has publicly stated its expectation that most bank holding
companies should maintain a leverage ratio of 1% to 2% above the minimum
requirement.
At December 31, 1996, the Company's tier one capital to risk-weighted assets was
10.84%, its total capital to aggregate risk-weighted assets was 11.75% and its
leveraged capital-to-assets ratio was 8.38%.
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Payment of Dividends. The Company's ability to pay dividends is governed by
Florida corporate law and its compliance with the above-discussed capital
ratios. Pursuant to the applicable statute, the Company may pay dividends in any
amount unless, after giving effect to the payment of the dividend, the Company
would be unable to pay its debts as they become due in the usual course of
business or the Company's assets would be less than its liabilities.
The payment of dividends by a Florida-chartered bank is governed by the Florida
statutes and applicable regulations. In general, a Florida-chartered bank may
pay quarterly, semiannual or annual dividends of so much of the aggregate net
profits of that period, combined with the retained net profits for the preceding
two years, as the bank's directors deem expedient. Prior to declaring any such
dividend, however, at least 20% of the net profits for such preceding period
covered by the dividend must be carried to surplus until surplus equals or
exceeds the aggregate of common and preferred equity.
Activities Limitations. The BHCA generally limits the business in which a bank
holding company may engage to banking, managing or controlling banks, and
non-banking activities that the Federal Reserve has determined, by regulation or
order, to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto.
The Federal Deposit Insurance Corporation Improvement Act of 1991
In 1991, a comprehensive deposit insurance and banking reform plan, the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the "FDICIA"), became
law. Although the FDICIA's primary purpose was to recapitalize the BIF, it also
affected the supervision and regulation of the banking industry. The FDICIA
authorizes regulators to take prompt corrective action to solve the problems of
critically undercapitalized institutions. As a result, banking regulators are
required to take certain supervisory actions against undercapitalized
institutions, the severity of which increases as an institution's level of
capitalization decreases. Pursuant to the FDICIA, the federal banking agencies
have established levels at which an insured institution is considered to be
"well capitalized," "adequately capitalized," "undercapitalized" or "critically
undercapitalized." See "Commercial Bank Regulations -- Prompt Corrective Action"
below for additional discussion.
The FDICIA required the federal banking agencies to revise their risk-based
capital requirements to include components for interest rate risk, concentration
of credit risk and the risk of non-traditional activities. See "Commercial Bank
Regulations--Regulatory Capital Requirements" below for a further description of
the final rule adopted by the FDIC that incorporated an interest rate risk
component in the risk-based capital requirement.
In addition, the FDICIA requires each federal banking agency to establish
standards relating to internal controls, information systems, and internal audit
systems that are designed to assess the financial condition and management of
the institution; loan documentation; credit underwriting; interest rate
exposure; asset growth; and compensation, fees and benefits. The FDICIA also
provided for the risk-based deposit insurance assessment system for FDIC-insured
depository institutions (see "Commercial Bank Regulations -- Insurance of
Accounts" below). The FDICIA further requires annual on-site full examinations
of depository institutions, with certain exceptions, and annual reports on the
institution's financial and management controls.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (the
"FIRREA"), which was enacted in response to concerns regarding the soundness of
the thrift industry, brought about substantial changes in the federal deposit
insurance system and the regulatory environment in which depository institutions
operate. The FIRREA brought about a significant regulatory restructuring,
limited depository institutions' business activities, and increased depository
institutions' regulatory capital requirements.
The FIRREA also authorizes the FDIC to hold an FDIC-insured depository
institution liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default.
The FIRREA also terminated a judicially sanctioned practice whereby the banking
subsidiary of a bank holding company could insulate itself from the failure of
another banking subsidiary of the same bank holding company. Pursuant to the
provisions of
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<PAGE> 10
FIRREA, a financial institution insured by the FDIC sharing common ownership
with a failed institution can be required to indemnify the FDIC for its losses
resulting from the insolvency of the failed institution, even if such
indemnification causes the affiliated institution also to become insolvent.
Commercial Bank Regulation
Capital Bank, as a Florida-chartered commercial bank, is subject to supervision
by the Department of Banking and Finance of the State of Florida. Such
supervision includes periodic examinations, periodic reporting requirements,
limitations on investment and other powers and regulation of the establishment
and operation of branches.
Insurance of Accounts. Capital Bank's deposits are insured by the BIF up to
$100,000 for each insured account holder, the maximum currently permitted by
law. Pursuant to the FDICIA, the FDIC adopted risked-based insurance premiums
effective January 1, 1993. Under such premiums, institutions are divided into
three groups -- well capitalized, adequately capitalized and undercapitalized --
based on criteria consistent with those established for the prompt corrective
action provisions of the FDICIA. Each of these groups is further divided into
three subgroups, based on a subjective evaluation of supervisory risk to the
insurance fund posed by the institution.
Regulatory Capital Requirements. The FDIC has adopted regulatory capital
requirements for assessing bank capital adequacy that are substantially
identical to those required for the Company by the Federal Reserve. Banks must
maintain a minimum leverage ratio of at least 4% and a capital to risk-weighted
assets ratio of at least 8%. At December 31, 1996, Capital Bank's tier one
capital to risk-weighted assets was 10.37%, its total capital to aggregate
risk-weighted assets was 11.28% and its leveraged capital-to-assets ratio was
8.03%. Pursuant to applicable regulations, Capital Bank would be deemed "well
capitalized."
Prompt Corrective Action. The FDIC and other federal regulators have
established capital levels of institutions to implement the "prompt corrective
action" provisions of the FDICIA. Capital levels have been established for which
an insured institution will be categorized as "well capitalized", "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." The FDICIA requires federal banking regulators,
including the FDIC, to take prompt corrective action to resolve the problems of
those institutions that fail to satisfy their applicable minimum capital
requirements. The level of regulatory scrutiny and restrictions imposed become
increasingly severe as an institution's capital level falls.
A "well capitalized" institution must have risk-based capital of 10% or more,
leverage capital of 5% or more and Tier 1 risk-based capital of 6% or more and
may not be subject to any written agreement, order, capital directive or prompt
corrective action directive. Capital Bank is a well capitalized institution
under the definitions as adopted. An institution will be categorized as
"adequately capitalized" if it has total risk-based capital of 8% or more,
leverage capital of 4% or more and Tier 1 risked-based capital of 4% or more;
"undercapitalized" if it has total risk-based capital of less than 8% or
leverage capital of less than 4% and Tier 1 risked-based capital of less than
4%; "significantly undercapitalized" if it has total risk-based capital of less
than 6% or leverage capital of less than 3% or Tier 1 risked-based capital of
less than 3%; and "critically undercapitalized" if it has a ratio of tangible
equity to total assets equal to or less than 2%.
In the case of an institution that is categorized as "undercapitalized," such an
institution must submit a capital restoration plan to the appropriate agency. An
undercapitalized depository institution generally will not be able to acquire
other banks or thrifts, establish additional branches or engage in any new lines
of business unless consistent with its capital plan. A "significantly
undercapitalized" institution will be subject to additional restrictions on its
affiliate transactions, the interest rates paid by the institution on its
deposits, asset growth, senior executive officers' compensation and activities
deemed to pose excessive risk to the institution. Regulators may also order a
significantly undercapitalized institution to hold a new election of directors,
terminate any director or senior executive officer employed for more than 180
days prior to the time the institution became significantly undercapitalized, or
hire qualified senior executive officers approved by the regulators.
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<PAGE> 11
The FDICIA provides that an institution that is "critically undercapitalized"
must be placed in conservatorship or receivership within 90 days of being
categorized as such unless the institution's regulator and the FDIC jointly
determine that some other course of action would result in a lower resolution
cost to the institution's insurance fund. Thereafter, the institution's
regulator must periodically reassess its determination to permit a particular
critically undercapitalized institution to operate and must appoint a
conservator or receiver for the institution at the end of an approximately
one-year period following the institution's initial classification as critically
undercapitalized, unless a number of stringent conditions are met, including a
determination by the regulator and the FDIC that the institution has positive
net worth and a certification by such agencies that the institution is viable
and is not expected to fail.
In addition to the foregoing prompt corrective action provisions, the FDICIA
also sets forth requirements that the federal banking agencies, including the
FDIC, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and BIF.
Transactions with Affiliates. Capital Bank is subject in its dealings with
companies that are affiliates (but not subsidiaries) of Capital Bank to certain
provisions of the Federal Reserve Act and Regulation O. Under Section 23A of the
Federal Reserve Act, an "affiliate" of a depository institution is defined
generally as (i) any company that controls the institution and any other company
that is controlled by the company that controls the institution, (ii) any
company that is controlled by the shareholders who control the institution or
any company that controls the institution, or (iii) any company that is
determined by regulation or order to have a relationship with the institution
(or any subsidiary or affiliate of the institution) such that "covered
transactions" with the company may be affected by the relationship to the
detriment of the institution. "Control" is determined to exist if a percentage
stock ownership test is met or if there is control over the election of
directors or the management or policies of the company or institution. "Covered
transactions" generally include loans or extensions of credit to an affiliate,
purchases of securities issued by an affiliate, purchases of assets from an
affiliate (except as may be exempted by order or regulation) and certain other
transactions. The Federal Reserve Act requires that covered transactions and
certain other transactions with affiliates be on terms and conditions consistent
with safe and sound banking practices or on terms comparable to similar
transactions with non-affiliated parties, and imposes qualitative restrictions
on the amount of and collateralization requirements on covered transactions.
Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O impose
limitations on loans and extensions of credit from an institution to its
executive officers, directors and principal stockholders and each of their
related interests.
Florida Regulation. Capital Bank, as a Florida-chartered bank, is subject to
the supervision and control of, and is regularly examined by, the Florida
Department of Banking and Finance (the "FDBF"). Capital Bank is also affected by
various requirements to maintain collateral to secure public funds deposits,
restrictions on interest rates that may be charged on loans and limitations on
the type of investments which may be made. In connection with examinations
performed in the conduct of their normal regulation and supervision, the FDBF
may impose a variety of remedies if a supervised bank is found to be operating
in an unsafe and unsound manner. Such remedies include, but are not limited to,
restrictions on dividend payments, maintenance of capital ratios higher than the
minimum requirements, growth limits and other operating restrictions or
requirements.
Community Reinvestment Act. Under the Community Reinvestment Act (the "CRA"),
as implemented by the FDIC, a bank has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
the communities served by the bank's offices, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop types of products and services that it believes are best
suited to its particular community. The CRA requires the FDIC to assess, as part
of its examination of a financial institution, the institution's performance in
meeting the credit needs of its community and to take such assessments into
consideration in reviewing certain applications. The FIRREA amended the CRA to
require public disclosure of an institution's CRA performance using the ratings
of "outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance." Based upon an FDIC examination conducted as of May 22, 1995,
Capital Bank's CRA rating is outstanding. In 1995, the FDIC adopted certain
amendments to the CRA regulations which changed the criteria used to measure a
bank's performance under the CRA. Such amendments will be fully implemented on
July 1, 1997.
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<PAGE> 12
Factors Holding Regulation
Factors Holding, as a subsidiary of Capital Bank, and Capital Factors are
subject to periodic examination by representatives of the FDBF, the FDIC and the
Federal Reserve. Factors Holding and Capital Factors are also limited in their
business activities to those activities that are authorized for direct or
indirect subsidiaries of bank holding companies by the BHCA and Regulation Y
promulgated thereunder. In addition, FIRREA limits state chartered institutions
and their subsidiaries to engaging only in those activities that are authorized
for national banks and their subsidiaries. Although factoring, as well as the
other businesses in which Factors Holding and Capital Factors currently engage,
are authorized activities of a national bank, there can be no assurances that
business opportunities that such companies might wish to pursue in the future
will be authorized activities for the Bank. Therefore, such activities might be
unavailable to Factors Holding (or Capital Factors) because of its regulated
status as a subsidiary of the Bank.
-12-
<PAGE> 13
ITEM 2. PROPERTIES
The principal properties of the Company include branch and administrative
offices used by the Bank and Factors Holding. The principal office of Bancorp
and Capital Bank is located at 1221 Brickell Avenue, Miami, Florida, where the
Company occupies approximately 64,300 square feet of office space. The lease for
such property expires in 1997. The Bank recently completed renewal negotiations,
which will result in a new 5 year lease with a 5 year renewal option, and a
reduction in space occupied to approximately 49,000 square feet. The Bank
operates 28 branch offices in Dade, Broward and Palm Beach counties, Florida, 10
of which are fully owned, 14 of which are fully leased, and 4 of which are
located in buildings owned by the Bank that are located on land subject to
long-term leases. Additionally, various administrative and other non-branch
departments occupy office space generally contiguous with branch offices.
Factors Holding owns its main office property in Ft. Lauderdale (Broward
County), Florida and leases space for its offices in New York, Los Angeles,
Charlotte and Atlanta. Factors Holding recently entered into a 10-year lease
for approximately 14,000 square feet of property located in Boca Raton (Palm
Beach County), Florida, where it will relocate its executive offices during the
second quarter of 1997. Management believes its properties to be satisfactory
for the operations conducted at each.
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<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to or involved in the following legal and administrative
proceedings:
NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD WEIN, AS INDIVIDUAL
SHAREHOLDERS AND ON BEHALF OF ALL OTHER SHAREHOLDERS OF CAPITAL BANCORP V. ABEL
HOLTZ, FANA HOLTZ, DANIEL M. HOLTZ, JAVIER J. HOLTZ, CAPITAL BANK AND CAPITAL
BANCORP, Circuit Court for the 11th Judicial District in and for Dade County,
Florida (Case No. 95-02515).
On February 8, 1995, certain shareholders of Bancorp commenced a derivative
action against Bancorp, Daniel M. Holtz, the Chairman of the Board, President
and Chief Executive Officer of Bancorp, Fana Holtz, the Vice Chairman of the
Board, Javier Holtz, a director of Capital Bank, and Abel Holtz, the former
Chairman of the Board, President and Chief Executive Officer of Bancorp (the
"Derivative Action"). The Derivative Action was subsequently amended to add,
among other things, the remaining members of the Board of Directors as
defendants. Through the Derivative Action, the plaintiffs alleged that certain
defendants engaged in a series of illegal activities causing harm to Bancorp and
Capital Bank, including (i) the settlement of a sexual harassment claim, (ii)
the payment of excessive compensation and separation payments, (iii) the
appointment of unqualified family members as officers, (iv) the withholding of
information and (v) the misappropriation of Capital Bank funds for personal
uses. The plaintiffs also alleged that such individuals engaged in a series of
activities designed to improperly increase or maintain their interest in, and
control of, Bancorp, including (i) the unlawful use of proxies, (ii) the
prevention of investigations and shareholder meetings, (iii) the unlawful
alteration of the composition of Bancorp's Board of Directors and (iv) the
failure to obtain approval for a change in control.
The Board of Directors of Bancorp established an independent committee (the
"Committee") to investigate the allegations contained in the Derivative Action
and to retain independent legal counsel. The members of the Committee are
Russell Galbut, who serves as Chairman of the Committee, and Hugh Culverhouse,
Jr., both of whom are outside directors of Bancorp. Thereafter, the plaintiffs
alleged that the Committee was not independent because members were invalidly
elected by the Board and because such members knew or should have known about
the alleged illegal proxy solicitation and alleged fraudulent actions by the
other defendants. Upon motion of the defendants, the complaint was dismissed
without prejudice in November 1995 for containing legal argument, which the
court ruled to be improper. The Court allowed for the filing of an amended
complaint, but stayed the proceedings and any required response to an amended
complaint until the Committee had a reasonable period of time to complete its
review. The plaintiffs' appeal of the Court's decision to stay the proceedings
was denied. In May 1996, the plaintiffs moved for a rehearing or, alternatively,
for clarification of the Court's denial of such appeal. In June 1996, the
plaintiff's motion for rehearing was denied.
An amended complaint was filed in December 1995 containing substantially the
same allegations. The plaintiffs in the Derivative Action are seeking, on behalf
of Bancorp, unspecified monetary damages, including treble damages, reasonable
costs and attorneys' fees, and injunctive relief (i) precluding Fana Holtz from
voting shares for which she has proxies, (ii) setting aside a February 27, 1995
shareholders' meeting, (iii) reinstating two former directors, (iv) precluding
the current Board from taking any action and (v) returning certain shares to
Bancorp. No motions seeking such relief have been filed. No monetary relief is
sought from the Company and no count specifically seeks relief from the Company.
The Committee issued a report dated May 29, 1996 concluding, based on its
investigation and the investigation of its counsel and accounting firm, that
"the derivative litigation is not in the best interest of Capital Bancorp or
Capital Bank and, as such, should be dismissed." In December 1996, Bancorp
entered into an agreed order with the plaintiffs to lift the stay entered by the
Court and, in January 1997, Bancorp filed a motion to dismiss the Derivative
Action. A hearing on such motion is pending.
The Chairman of the Committee, and two companies in which he is a principal and
a director (neither of which are affiliates of Bancorp or the Bank), were
recently named as defendants in a complaint filed in the United States District
Court for the Southern District of Florida by a former female employee of such
companies, alleging sex discrimination, sexual harassment and exposure to a
sexually hostile work environment through the actions of such director as the
managing director of the defendant companies. The complaint also alleges
intentional infliction of emotional distress and violation of the Florida
Whistleblower Statute. In connection with the latter claim, the employee
alleges, among other things, that in 1995, the director requested that she
provide perjured testimony in connection with "private civil litigation and an
investigation by
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<PAGE> 15
the Federal Deposit Insurance Corporation involving Bancorp," which testimony
would have included, but not been limited to, "the fact that certain shares of
stock of the Company were being fraudulently held in trust for [the director]
under the names of certain other third parties." The former employee also
alleges that the director requested that she assist the law firm hired by
Bancorp to conduct a purportedly "independent investigation." The plaintiff
alleges that the director made this request even though he was named as a
defendant in the lawsuit and that he promised her a large bonus if she became
involved and provided him with details of any findings of wrongdoing before
officially reported. Although no answer is yet due or has been filed, the
director has advised the Company that in his judgement, there is no substance to
any of the allegations. The director's motion to dismiss, or in the alternative,
for summary judgment is pending. No other allegations in this complaint relate
to Bancorp or the Bank.
The director has filed an action against the former employee in the Circuit
Court for the Eleventh Judicial Circuit in and for Dade County, Florida, seeking
permanent injunctive relief and damages for conspiracy and extortion, as well as
defamation. The director alleges that the former employee schemed to extort $1.2
million from the director by the use of defamation and blackmail.
STANLEY I. WORTON, M.D., NATHAN J. ESFORMES V. ABEL HOLTZ, FANA HOLTZ, DANIEL
HOLTZ, ALEX HALBERSTEIN AND CAPITAL BANCORP, Circuit Court for the 11th Judicial
District in and for Dade County, Florida (Case No. 95-02520).
Also on February 8, 1995, a shareholder of Bancorp commenced an individual
action against Bancorp, Daniel Holtz, Javier Holtz, Fana Holtz and Abel Holtz
(the "Individual Action"). Such action alleged that the defendants, other than
Bancorp, breached fiduciary duties owed to the plaintiff by, among other things,
improperly using proxies to vote shares of Bancorp owned by the plaintiff and
another shareholder to engage in improper activity and to promote their personal
interest to the detriment of the plaintiff. In support of the complaint, the
plaintiff asserted many of the same allegations contained in the Derivative
Action. Thereafter, the plaintiff filed an amended complaint pursuant to which
an additional plaintiff was added (both plaintiffs are named plaintiffs in the
Derivative Action) and all the existing and certain former directors of Bancorp
were added as defendants. The amended complaint alleged that certain of the
defendants unlawfully solicited proxies for the February 27, 1995 annual
shareholders' meeting and that the actions taken at such meeting, including the
reduction in the size of the Board, were invalid. The amended complaint also
sought a court order directing Bancorp to hold a shareholders' meeting on or
before May 28, 1995 to elect a board of directors (although the required papers
to have a hearing on the matter have not been filed).
Upon motion of the defendants in the Individual Action, the amended complaint
was dismissed without prejudice for containing legal argument, which the court
ruled to be improper. The Court dismissed with prejudice the plaintiff's request
to terminate the proxies granted by the non-plaintiff shareholder. The Court
allowed for the filing of an amended complaint, but stayed the proceedings as to
certain claims until the Independent Committee had a reasonable period of time
to complete its review. The Court also indicated that certain counts of the
complaint did not properly plead the elements for injunctive relief. An amended
complaint was filed in December 1995 containing substantially the same
allegations. The plaintiffs seek unspecified monetary damages and costs and, in
addition to the injunctive relief requested in the Derivative Action, plaintiffs
seek relief regarding, among other things, the voting and/or termination of
certain proxies, the establishment of a constructive trust for certain shares
and options, the holding of a shareholders meeting, the return to one of the
plaintiffs of his percentage of any shares obtained by members of the Holtz
family because of the control group created by the proxies and the reinstatement
of one of the plaintiffs to the Board of Directors and invalidation of the
actions of the current Board. Plaintiffs also seek declaratory relief
invalidating the proxies and former actions with respect to which the proxies
were voted. The plaintiffs have not indicated that they are seeking any monetary
relief from Bancorp other than costs. Bancorp has filed a motion to dismiss the
two counts of the complaint in the Individual Action in which it is named and
has moved to stay certain other counts of the complaint on the grounds that
those claims are derivative.
The Company does not believe that the outcome of the foregoing litigation
matters will have a material adverse effect on the Company's financial
condition, results of operation or liquidity. The Company has not determined
whether, if asked, it would indemnify directors and former directors named in
this action if the plaintiffs are successful, although it is currently advancing
the legal expenses of the outside directors who were named as defendants. Such
defendants have agreed to repay the Company for all or any portion of such
advances which they are ultimately found not to be entitled to pursuant to
applicable law. Based on the information currently available to the Company,
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<PAGE> 16
management does not believe that the indemnification of the directors named as
defendants in the above litigation will have a material adverse effect on the
financial condition, results of operations or liquidity of the Company. However,
the actual effects of such indemnification on the Company cannot be finally
determined until the amount of such indemnification, if any, is fixed. For more
information regarding such indemnification, see "Compensation Committee
Interlocks and Insider Participation" under Item 11 hereof.
Other Litigation
Various other legal actions and proceedings are pending or threatened against
Bancorp, the Bank and Capital Factors, certain of which seek relief or
damages in amounts that are substantial. Unlike the aforementioned matters,
however, these actions or proceedings arose in the ordinary course of business.
Due to the complex nature of these matters, it may be years before they are
ultimately resolved. After consultation with legal counsel, management believes
that such matters, will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.
Regulatory Matters
Fana Holtz, the Vice-Chairman of the Board, Daniel Holtz, Chairman of the Board,
President and Chief Executive Officer of Bancorp, and Javier Holtz, Senior Vice
President of Bancorp and a director of Capital Bank, have advised the Company
that they had discussions with the Florida Department of Banking and Finance
(the "FDBF") as to whether one or more of them was required under Florida law to
file an application to acquire and/or maintain a controlling interest in the
Bank through their ownership and control of Bancorp. Fana Holtz, Daniel Holtz
and Javier Holtz have advised Bancorp that, as a result of those discussions,
they, both individually and as a group, have voluntarily filed an application to
acquire and/or maintain a controlling interest in Bancorp, although they do
not believe such an application is legally required. Daniel Holtz, Fana Holtz
and Javier Holtz also have had discussions with the Board of Governors of the
Federal Reserve (the "Federal Reserve") as to whether a change of control notice
is required under federal law. As of February 14, 1997, Daniel Holtz, Fana Holtz
and Javier Holtz, owned and/or had the power to vote, approximately 6.4%, 36.8%
and 3.8% (47.0% in the aggregate), respectively, of Bancorp's Common Stock
(including shares of Common Stock subject to options exercisable by such
individuals within 60 days).
The plaintiffs and another shareholder in the above-described litigations filed
a Notice of Intent to Appear and Petition for a Formal Administrative Hearing
with the FDBF in connection with the disposition of the Florida application
opposing the change in control notice and application and raising many of the
same issues raised in the Derivative and Individual Actions. A hearing commenced
in August 1996 and ended in November 1996 but, to the Company's knowledge, no
decision has been reached on the application. It cannot presently be determined
what effect, if any, the discussions with the Federal Reserve and the FDBF's
action on the application will have on the Company, although if control
applications ultimately were determined to be required and such applications
were denied, regulatory authorities could take various actions, including
requiring that one or more members of the Holtz family divest sufficient shares
of Bancorp so as not to have legal control of Bancorp as defined by regulatory
authorities.
Abel Holtz, the former Chairman of the Board, President and Chief Executive
Officer of Bancorp and currently a shareholder of Bancorp is subject to the
restrictions of Section 19 of the Federal Deposit Insurance Act which preclude
him from controlling or otherwise participating in the affairs of Bancorp or
Capital Bank without regulatory approval. Federal bank regulatory authorities
have been examining and investigating whether Abel Holtz and some or all of the
persons discussed in the paragraphs above, including Bancorp and its
subsidiaries, and possibly other persons, are in compliance with applicable
change in control laws and Section 19. In December 1996, the Federal Deposit
Insurance Corporation (the "FDIC") issued a cease and desist order, which
prohibits Abel Holtz from, among other things, (i) assisting, participating or
engaging in the solicitation of proxies from Bancorp shareholders; (ii)
influencing or attempting to influence the voting or disposition of any shares
of Common Stock, excepting only the disposition of those shares owned directly
by him; (iii) requesting or receiving performance reports or other internal data
relating to the activities, operations or financial condition of the Company; or
(iv) communicating with any officer, director or employee of the Company on
matters regarding the conduct of the operations or affairs of the Company. The
cease and desist order also required, among other things, that Abel Holtz, who
as of February 14, 1997 owned 9.1% of Bancorp's Common Stock, enter into an
irrevocable proxy (the "Proxy") with respect to such shares. The Company has
been advised that on December 24, 1996, Abel Holtz entered into such Proxy,
which transferred the sole right and power to vote the shares of Bancorp he
currently owns (and any shares he may acquire in the future) to a third party.
Pursuant to the Proxy, such third party is required to vote the shares
proportionately with all other outstanding shares of Bancorp on any matter
brought before the shareholders of Bancorp for a vote.
The Company also was advised that, in a January 1997 letter, the FDIC informed
Fana Holtz, Daniel Holtz and Javier Holtz that the FDIC did not anticipate
recommending any enforcement action against any of such individuals as a result
of the FDIC'S investigation. The FDIC'S decision was based on information known
to the FDIC at such time, and the FDIC reserved the right to change its position
in the event that additional facts and circumstances warrant reconsideration.
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<PAGE> 17
To date, the Company is unaware of any other conclusions related to the above
described inquiries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Bancorp's stockholders during the fourth
quarter of 1996.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Trading Market
Effective July 27, 1995, Bancorp's Common Stock was listed for trading on the
Nasdaq National Market under the trading symbol "CBCP." Prior to that date,
there was no established public trading market for the Common Stock. The high
and low sales prices of Bancorp's Common Stock since the commencement of public
trading are set forth below, for the periods indicated:
<TABLE>
<CAPTION>
For the Quarters Ended
--------------------------------------------------------------------
9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
High $31 $37 1/2 $34 1/2 $32 $29 1/2 $28 7/8
Low 24 25 1/2 28 3/4 28 1/4 24 1/4 26 3/4
Close 26 34 3/4 30 1/4 28 1/4 28 28
</TABLE>
Stockholders
As of March 25, 1997, there were approximately 510 holders of record of the
Company's Common Stock and the closing price as quoted on the Nasdaq National
Market was $34 1/8.
Dividends
The following table reflects the annual dividends per share of Bancorp's Common
Stock that have been declared during 1996 and 1995. Dividends were paid in equal
quarterly amounts.
Year Amount Per Share
- ---- ----------------
1996 $.33 1/3
1995 $.33 1/3 (1)
- --------------
(1) Adjusted to reflect the 3-for-2 stock split in the form of a 50% stock
dividend which was effective on June 22, 1995.
Bancorp anticipates that it will continue payment of regular dividends to its
shareholders; however, there can be no assurance as to payment of such future
dividends. Bancorp's ability to pay dividends to its shareholders is primarily
dependent on the ability of the Bank and its subsidiaries to pay dividends to
the Company. Such payment is dependent on the Bank's earnings and financial
condition, its needs for future capital and other factors. The Bank is also
limited by Florida law as to the amount of dividends it can pay. See
"Supervision and Regulation" under Item 1 hereof.
In the third quarter of 1996, Capital Factors Holding, Inc. ("Factors Holding")
completed an initial public offering of an aggregate of 2,300,000 shares of its
Common Stock at a public offering price of $8.50 per share. Prior to this
offering, all of the Common Stock of Factors Holding was owned by the Bank. As a
result of the offering, the Bank's ownership of Factors Holding was reduced to
approximately 81% of the outstanding Common Stock. Factors Holding's Common
Stock is listed for trading on the Nasdaq National Market under the symbol
"CAPF." For the quarter ended September 30, 1996, the high, low and closing
sales prices were $10 3/8, $8 1/4 and $10 1/4, respectively, and for the quarter
ended December 31, 1996, the high, low and closing sales prices were $13 1/4, $9
7/8 and $12 1/2, respectively. Factors Holding does not currently pay dividends
to its shareholders.
As of March 25, 1997, there were approximately 550 holders of record, including
individual participants in security position listings, of Factors Holding's
Common Stock and the closing price as quoted on the Nasdaq National Market was
$15.00.
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<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table presents the historical summary of selected consolidated
financial data of Capital Bancorp and Subsidiaries for the years ended December
31, 1992 through 1996. This data should be read in conjunction with the
consolidated financial statements of Capital Bancorp and Subsidiaries contained
in Item 8 herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except per share data and ratios)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income $ 119,895 $ 109,331 $ 84,563 $ 77,270 $ 77,124
Interest expense 49,592 41,752 25,114 20,474 28,430
Net Interest income 70,303 67,579 59,449 56,796 48,694
Provision for loan losses 5,275 3,600 3,525 9,500 8,900
Provision for doubtful
accounts - factoring subsidiary 3,750 2,235 2,235 2,645 3,150
Other income (1) 53,158 46,106 41,948 40,199 35,111
Other expenses (2) 80,568 80,288 74,459 67,713 60,934
Net income 20,204 17,101 13,204 11,769 8,190
Return on average assets 1.22% 1.20% 1.04% 0.96% 0.69%
Return on average equity 16.34% 16.71% 15.10% 14.70% 11.57%
Net interest margin, taxable
equivalent 5.45% 5.84% 5.91% 6.03% 5.52%
PER SHARE DATA (3):
Net income (4) $ 2.50 $ 2.20 $ 1.80 $ 1.61 $ 1.16
Cash dividends declared 0.33 0.33 0.33 0.33 0.27
Stockholders' equity
(at year end) 18.02 15.26 12.85 12.25 10.63
Dividend payout ratio 12.35% 15.00% 18.52% 20.66% 22.99%
Average common equivalent
shares - fully diluted 8,096,279 7,769,992 7,346,747 7,297,522 7,047,935
BALANCE SHEET DATA:
Total assets $1,762,898 $1,589,715 $1,317,081 $1,204,467 $1,271,015
Loans, net 818,033 713,491 636,211 546,623 552,073
Factored accounts receivable,
net 449,528 316,506 245,361 219,220 176,376
Deposits 1,096,825 1,038,755 876,793 915,848 934,356
Other borrowings 79,905 86,133 87,236 59,566 116,595
Long-term debt 202,220 176,650 126,980 2,605 3,855
Stockholders' equity 135,742 113,725 91,363 84,673 74,549
CAPITAL RATIOS:
Average equity to average assets 7.49% 7.18% 6.87% 6.51% 5.96%
Tier 1 Leverage Ratio (5) 8.38% 7.25% 7.58% 7.30% 6.18%
Tier 1 Risk-Based Ratio (5) 10.84% 9.99% 9.68% 9.23% 8.21%
Total Risk-Based Ratio (5) 11.75% 11.24% 10.82% 10.48% 9.46%
</TABLE>
- -------------------------------
(1) Includes securities gains of $18 thousand, $12 thousand, $1.2 million, $632
thousand and $106 thousand for the years ended 1996, 1995, 1994, 1993 and
1992, respectively.
(2) Includes minority interest in net income of consolidated subsidiary of $1.1
million in 1996.
(3) Adjusted for the 3-for-2 stock split effected in the form of a 50% stock
dividend in June 1995.
(4) Calculated based of fully diluted common and common equivalent shares
outstanding.
(5) Effective December 31, 1995, pursuant to discussions with its regulatory
authorities, the Company began including certain assets of Capital Factors
in its capital ratio calculations which historically had not been included.
This change resulted in a decrease of approximately 10% in regulatory
capital ratios. Ratios for years prior to 1995 have not been revised to
include such assets.
-19-
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This discussion and the related financial data contained herein are presented to
assist the reader in understanding and evaluating the financial condition,
results of operations and future prospects of Capital Bancorp and its
subsidiaries and are intended to supplement, and should be read in conjunction
with, the Consolidated Financial Statements and related Notes and other
financial information presented herein.
In addition, this Form 10-K contains certain "forward-looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance and the Company's operations,
performance, financial condition, growth and strategies. For this purpose, any
statements contained in the Form 10-K that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the forgoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors which
are noted herein, including, but not limited to, potential impact of changes in
interest rates, credit risks and collateral, dependence on management and key
personnel, supervision and regulation issues, competition, changes in regional
economic conditions, ability of the Company to continue its growth strategy and
current litigation and regulatory matters.
Capital Bancorp ("Bancorp") is a bank holding company which conducts operations
principally through Capital Bank (the "Bank"), a wholly-owned subsidiary, and
Capital Factors Holding, Inc., a majority-owned subsidiary of the Bank. The Bank
operates a commercial banking franchise through 28 offices located in the South
Florida area. Capital Factors Holding, Inc. and its subsidiaries (collectively,
"Capital Factors") provides accounts receivable factoring and asset-based
lending services through offices located in Ft. Lauderdale, Florida, New York,
New York, Los Angeles, California and Charlotte, North Carolina. Throughout this
discussion, Bancorp and its subsidiaries are collectively referred to as the
"Company."
In the third quarter of 1996, Capital Factors Holding, Inc. completed an initial
public offering of 2,300,000 shares of its Common Stock at a public offering
price of $8.50 per share. Prior to this offering, all of the Common Stock was
owned by the Bank. The net proceeds from the offering, which totaled
approximately $17.7 million, were used to reduce Capital Factors Holding, Inc.'s
indebtedness to the Bank under an outstanding line of credit. As a result of the
offering, the Bank's ownership of Capital Factors Holding, Inc. has been reduced
to approximately 81% of the outstanding Common Stock.
On August 9, 1996, Capital Factors completed the acquisition of substantially
all of the assets of TempFunds America, Inc. and its affiliate, TempFunds
America Funding Corporation of South Carolina, Inc., which are specialized
financial service companies that provide receivables-based commercial financing
and related fee-based credit, collection and management information services to
temporary employment and home healthcare agencies. Such entities provide certain
services not presently provided by Capital Factors, including billing, payroll
processing and other payroll services, and insurance reporting. The purchase
price paid by Capital Factors was approximately $5.9 million, subject to certain
post-closing adjustments. An additional $900,000 is payable by Capital Factors
over a three year period if certain contingencies are met.
FINANCIAL CONDITION
Overview
- --------
During 1996, total consolidated assets increased $173.2 million, or 11%, to $1.8
billion. This increase included increases of $114.6 million in interest earning
assets and $58.6 million in non-interest earning assets. The increase in total
consolidated assets was comprised primarily of increases of $133.0 million in
net accounts receivable - factoring subsidiary and $104.5 million in net loans
and was offset by decreases of $32.6 million in cash and cash equivalents and
$22.0 million in total securities.
Total consolidated liabilities increased $139.6 million, or 9%, to $1.6 billion.
The growth in liabilities included $97.8 million in interest bearing balances
and $41.8 million in non-interest bearing balances. Total equity increased $22.0
million, or 19%, to $135.7 million, primarily as a result of earnings in excess
of dividends paid and the gain from the public offering of 2,300,000 shares of
Common Stock of Capital Factors Holding, Inc.
-20-
<PAGE> 21
See Table 9 below for a distribution of identifiable assets and liabilities
associated with the Company's major lines of business.
Securities
- ----------
The decrease in total securities primarily consisted of maturities, calls and
paydowns of $63.0 million in U.S. Government obligations and $36.2 million in
U.S. agency securities offset by purchases of $54.5 million in U.S. agency
securities and $30.0 million in U.S. Government obligations.
The Company's securities holdings are segregated into three separate portfolios:
held to maturity, available for sale and trading. At December 31, 1996 and 1995,
the Company held no trading securities. Securities classified as held to
maturity are reported at historical cost, adjusted for amortization of premiums
and accretion of discounts. Securities classified as available for sale are
reported at market value. Any unrealized gain or loss, net of applicable income
taxes, is reported as a separate addition to or reduction from stockholders'
equity.
Securities held to maturity includes securities purchased with the ability and
positive intent to hold until maturity. Such securities are purchased for yield
purposes. Securities available for sale are also acquired for yield, and are
used in the management of overall liquidity and interest rate risk.
Included in other securities available for sale are debt securities issued by
foreign governments with aggregate market values of $3.6 million, $3.1 million
and $2.5 million at December 31, 1996, 1995 and 1994, respectively. The
amortized cost of these securities was $5.1 million for the respective dates.
These foreign debt securities were received in exchange for non-performing loans
in connection with Brady Plan restructurings by Argentina and Mexico. These
securities mature in 2019 to 2023 and are collateralized, as to principal, by
U.S. Treasury zero-coupon securities which will accrete to the face value of the
foreign security at their maturity. At the current time, management has no
intention of disposing of these foreign securities.
Table 1 below presents the book value of securities held as of the dates
indicated. Table 2 below presents the maturity distribution and weighted average
yields of securities held as of December 31, 1996. See Note 3 to the
Consolidated Financial Statements for additional information on securities.
-21-
<PAGE> 22
TABLE 1
COMPOSITION OF INVESTMENT SECURITIES
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
SECURITIES HELD TO MATURITY,
at amortized cost:
U.S. Government agency
obligations $ 25,010 $ 16,016 $ 82,649
State and Municipal
obligations 2,206 3,090 3,771
Other securities 4,209 4,390 4,611
-------- -------- ---------
Total securities held
to maturity $ 31,425 $ 23,496 $ 91,031
======== ======== =========
Aggregate market value $ 31,647 $ 24,173 $ 89,122
======== ======== =========
Gross unrealized gains $ 407 $ 677 $ 373
======== ======== =========
Gross unrealized losses $ 185 $ -- $ 2,282
======== ======== =========
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE,
at market value:
U.S. Treasury and Government
agency obligations $183,418 $212,854 $121,415
Other securities 3,643 4,154 8,603
-------- -------- --------
Total securities
available for sale $187,061 $217,008 $130,018
======== ======== ========
Aggregate amortized cost $188,394 $217,005 $135,871
======== ======== ========
Gross unrealized gains $ 1,009 $ 2,129 $ 151
======== ======== ========
Gross unrealized losses $ 2,342 $ 2,126 $ 6,004
======== ======== ========
</TABLE>
-22-
<PAGE> 23
TABLE 2
MATURITY AND YIELD OF INVESTMENT SECURITIES
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Weighted
Average Yield
as of
TYPE AND MATURITY GROUPING December 31, 1996 December 31, 1996
----------------- -----------------
<S> <C> <C>
Securities Held to Maturity:
U.S. Government agency
obligations (1):
Within one year $ -- --
After one year, but within five years 18,010 6.63%
After five years, but within ten years 7,000 6.77%
After ten years -- --
-------- -----
Total 25,010 6.67%
-------- =====
State and Municipal
obligations (2):
Within one year 100 12.94%
After one year, but within five years 262 13.18%
After five years, but within ten years 1,195 12.49%
After ten years 649 10.42%
-------- -----
Total 2,206 11.98%
-------- =====
Other securities:
Within one year -- --
After one year, but within five years 709 9.53%
After five years, but within ten years 3,500 7.77%
After ten years -- --
-------- -----
Total 4,209 8.07%
-------- =====
Total securities held to maturity $ 31,425 7.23%
======== =====
</TABLE>
- ------------------------------
(1) Mortgage-backed securities are included based upon the projected final
maturity.
(2) Yields of tax-exempt securities are stated on a tax-equivalent basis, using
a Federal tax rate of 35%.
-23-
<PAGE> 24
TABLE 2 (Continued)
MATURITY AND YIELD OF INVESTMENT SECURITIES
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Weighted
Average Yield
as of
TYPE AND MATURITY GROUPING December 31, 1996 December 31, 1996 (2)
----------------- ---------------------
<S> <C> <C>
Securities Available for Sale:
U.S. Treasury and
Government agency
obligations (1):
Within one year $ 23,114 6.21%
After one year, but within
five years 100,903 6.27%
After five years, but within
ten years 37,988 6.87%
After ten years 21,413 7.02%
---------- ----
Total 183,418 6.47%
---------- ====
Other securities:
Within one year -- --
After one year, but within
five years -- --
After five years, but within
ten years -- --
After ten years (3) 3,643 5.70%
---------- ----
Total 3,643 5.70%
---------- ====
Total securities available
for sale $ 187,061 6.46%
========== ====
</TABLE>
- ------------------------
(1) Mortgage-backed securities are included based upon the projected final
maturity.
(2) Weighted average yield is computed based on amortized cost.
(3) Includes equity securities aggregating $50 thousand with no fixed maturity.
-24-
<PAGE> 25
Loans
- -----
During 1996, total loans increased $102.4 million, or 14%, with increases in all
major categories. Table 3 below provides a five-year summary of the Company's
loan portfolio. Table 4 below presents the maturity distribution of loans.
Commercial loans increased $15.5 million, or 7%, reflecting primarily customer
demand. Included in commercial loans are asset-based loans made by Capital
Factors, which totaled $36.0 million at December 31, 1996 compared to $38.3
million at December 31, 1995. Asset-based loans are collateralized primarily by
receivables owned by the borrowers. Foreign loans increased $17.9 million, or
14%, reflecting the results of marketing efforts in the international trade
finance area. Loans to foreign banks are derived primarily from the Company's
short-term trade finance activities in Central and South America.
Substantially all of the Company's real estate lending is commercial in nature,
including construction financing and short-term (5 to 7 years) first mortgages
on income producing properties. Real estate construction loans increased $38.3
million, or 45%, during 1996 primarily as a result of new home demand in the
Company's South Florida market area.
Consumer loans include installment loans, home equity and other consumer credit
lines, and credit cards. Installment financing, primarily of automobiles,
represent the largest portion of these loans, amounting to approximately $150.0
million and $123.3 million of total consumer loans at December 31, 1996 and
1995, respectively. The increase in installment loans is primarily attributable
to automobile loans originated indirectly by dealers.
See "Business" in Item 1 hereof and "Asset Quality Review" below for additional
discussion of lending activities, including certain risk elements.
TABLE 3
COMPOSITION OF LOAN PORTFOLIO
(In Thousands of Dollars)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and financial $222,809 $207,357 $163,893 $157,340 $149,879
Foreign
Banks 129,563 109,997 89,500 49,701 92,680
Commercial and
industrial 15,920 17,626 25,816 34,462 44,555
-------- -------- -------- -------- --------
Total foreign 145,483 127,623 115,316 84,163 137,235
Real estate construction 122,656 84,402 70,049 70,253 82,951
Real estate mortgage 152,469 147,082 145,119 136,823 112,364
Consumer 183,396 158,698 150,256 112,920 85,697
Other 3,517 2,754 3,559 6,224 2,200
-------- -------- -------- -------- --------
$830,330 $727,916 $648,192 $567,723 $570,326
======== ======== ======== ======== ========
</TABLE>
-25-
<PAGE> 26
TABLE 4
CONTRACTUAL MATURITY OF
LOAN BALANCES (1)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
ONE YEAR AFTER
ONE YEAR THROUGH FIVE
OR LESS 5 YEARS (2) YEARS (2) TOTAL
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Commercial and
financial $175,752 $ 41,143 $ 3,039 $219,934
Foreign:
Banks 126,087 2,625 755 129,467
Commercial and
industrial 15,895 25 -- 15,920
-------- -------- -------- --------
Total foreign 141,982 2,650 755 145,387
Real estate
construction 56,092 53,174 13,390 122,656
Real estate mortgage 29,328 92,250 29,010 150,588
Consumer 34,267 136,833 11,751 182,851
Other 3,517 -- -- 3,517
-------- -------- -------- --------
$440,938 $326,050 $ 57,945 $824,933
======== ======== ======== ========
</TABLE>
- --------------------
(1) Excludes non-accrual loans aggregating $5.4 million.
(2) The total amount of loans due after one year which have predetermined
interest rates is $317.9 million. The total amount of loans with floating
or adjustable interest rates due after one year is $66.1 million.
Accounts Receivable
- -------------------
Accounts receivable - factoring subsidiary, net increased $133.0 million, or
42%, over year end 1995 levels to $449.5 million as a result of an overall
increase in factoring volume. Table 5 below provides a five-year summary of
Capital Factors' accounts receivable portfolio.
Capital Factors purchases receivables from its clients and records a liability
payable to the clients at the time of such purchase. From time to time, the
liability is reduced by advance payments by Capital Factors to the clients,
prior to the contractual payment date for the receivables purchased. Such
advance payments are interest earning balances of Capital Factors. Interest
earning advances, net of client interest bearing credit balances, amounted to
$263.5 million at December 31, 1996 compared to $194.3 million at December 31,
1995. Balances due to factoring clients for receivables purchased amounted to
$191.5 million and $128.6 million at December 31, 1996 and 1995, respectively.
-26-
<PAGE> 27
TABLE 5
COMPOSITION OF ACCOUNTS RECEIVABLE PORTFOLIO
(In Thousands of Dollars)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable $454,958 $322,891 $249,916 $222,951 $179,725
Reserve for discounts (2,436) (3,404) (2,781) (1,574) (1,192)
Allowance for doubtful
accounts (2,994) (2,981) (1,774) (2,157) (2,157)
-------- -------- -------- -------- --------
Accounts receivable, net $449,528 $316,506 $245,361 $219,220 $176,376
======== ======== ======== ======== ========
</TABLE>
Deposits
- --------
Total deposits were $1,096.8 million and $1,038.8 million at December 31, 1996
and 1995, respectively. The increase in total deposits included increases of
$59.7 million in time deposits and $18.8 million in savings and money market
deposits offset by a decrease of $20.4 million in non-interest bearing deposits.
The increase in interest bearing deposits reflects the combined effects of
internal marketing efforts to increase overall deposits and increased customer
demand for interest bearing deposits as a result of the higher rates offered.
Included in non-interest bearing deposits at December 31, 1995 was approximately
$21 million in U.S. Treasury demand deposits which were received in December
1995 and repaid in January 1996 in the normal course of business. See Table 6
below for the maturity distribution of time deposits of $100,000 or more. See
Table 10 below for the average balances and rates paid on deposit categories for
1996, 1995 and 1994.
The Company does not operate any foreign offices; however, as a result of the
activities of the International Division, foreign customers maintain deposit
accounts with the Bank. Deposits by foreign customers amounted to $190.7
million, $170.2 million and $135.5 million at December 31, 1996, 1995 and 1994,
respectively, representing 18%, 16% and 15% of total deposits, respectively. The
level of these deposits is, in part, related to the level of trade finance
activity conducted by the Company, and is also affected by economic trends in
foreign countries. Deposits from foreign customers increased during 1996 and
1995 as a result of increased trade finance activity, as well as transfer of
capital out of certain countries in reaction to economic uncertainties. Also,
deposits from foreign customers increased since 1994 as a result of the
internal marketing efforts mentioned above.
Deposit liabilities represented 68% and 70% of total liabilities at December 31,
1996 and December 31, 1995, respectively. For the same dates, interest bearing
non-deposit balances represented 17% and 18% of total liabilities. Management
believes that, as Capital Factors continues to grow and rely on outside funding
sources, deposit funding sources will continue to represent a lesser percentage
of total liabilities when compared to historical levels.
TABLE 6
MATURITY DISTRIBUTION OF TIME DEPOSITS
GREATER THAN $100,000
(In Thousands of Dollars)
Time Remaining until Maturity Amount
----------------------------- ------
3 months or less $ 95,666
Over 3 through 6 months 60,162
Over 6 through 12 months 63,244
Over 12 months 29,750
--------
Total at December 31, 1996 $248,822
========
Short-Term Borrowings
- ---------------------
The Company's short-term borrowings primarily represent securities sold under
agreements to repurchase on an overnight basis for deposit accounts of certain
high-balance retail customers. From time to time, the Company may also access
wholesale repurchase sources for seven to 90 day periods for short-term
liquidity management purposes.
-27-
<PAGE> 28
Table 7 below presents the year end balances, weighted average interest rates
and maximum outstanding balances of short-term borrowings for 1996, 1995 and
1994.
TABLE 7
FEDERAL FUNDS PURCHASED AND
SHORT-TERM BORROWINGS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM
AVERAGE OUTSTANDING
BALANCE AT INTEREST RATE DURING
YEAR END (1) AT YEAR END (1) THE PERIOD (2)
------------ --------------- --------------
<S> <C> <C> <C>
December 31, 1996
Short-term borrowings
- Retail $ 79,905 4.46% $ 94,818
- Wholesale -- N/A --
--------
$ 79,905
========
December 31, 1995
Short term borrowings
- Retail $ 86,133 4.40% $ 88,889
- Wholesale -- N/A 15,000
--------
$ 86,133
========
December 31, 1994
Domestic banks $ -- N/A $ 100
Short-term borrowings
- Retail 87,236 5.08% 104,910
- Wholesale -- N/A 20,000
--------
$ 87,236
========
</TABLE>
- -----------------------
(1) See Table 10, Yields Earned Rates Paid, for presentation of the average
amounts of short-term borrowings outstanding during the periods and the
applicable weighted average interest rates during the periods.
(2) Amount represents the maximum outstanding at any month end during the
period.
-28-
<PAGE> 29
Long-Term Debt
- --------------
During the second quarter of 1996, Capital Factors established a $40 million
revolving credit facility with an unaffiliated lender. Borrowings under this
facility bear interest at LIBOR plus 2.15% (7.76% at December 31, 1996) and
mature in March 1999. At December 31, 1996, $15.9 million was outstanding under
this line. Also during the second quarter, Capital Factors privately placed a
$10.0 million subordinated note with an unaffiliated lender. The note bears
interest at a fixed rate of 7.95% and matures in July 2001.
Capital Factors also has outstanding three series of Variable Rate Asset Backed
Certificates aggregating $175.0 million, which were issued in connection with
the securitization of factored advances. Such certificates bear interest at
LIBOR plus 1.25% (6.86% at December 31, 1996, excluding annualized transaction
costs of 0.37%) and are scheduled to mature in December 1999 ($100.0 million),
June 2000 ($25.0 million) and January 2001 ($50.0 million). Interest is payable
monthly; however, an early amortization event will occur if Capital Factors
fails to satisfy certain financial covenants.
-29-
<PAGE> 30
CAPITAL RESOURCES
Stockholders' equity increased by $22.0 million as a result of net income of
$20.2 million and a gain of $4.5 million (recorded directly as a component of
stockholders' equity) from the public offering of a minority interest in Capital
Factors Holding, Inc.'s Common Stock and was offset by dividends declared of
$2.5 million. Minority interest in Capital Factors Holding, Inc., which
qualifies as capital for regulatory purposes, amounted to $11.6 million at
December 31, 1996.
The Florida Department of Banking and Finance (the "FDBF"), the Federal Deposit
Insurance Corporation (the "FDIC") and the Board of Governors of the Federal
Reserve System (the "Federal Reserve") use guidelines in assessing the adequacy
of capital of financial institutions under their supervision. These guidelines,
which include required minimum leverage, Tier One risk-based and total
risk-based capital ratios, are considered in regulators' examinations and are
reviewed periodically for potential adjustments based upon changes in the
economy, financial markets and banking practices. Regulators can take a variety
of actions if capital guidelines are not met. Bancorp is supervised by the
Federal Reserve. The Bank is supervised by the FDIC and the FDBF.
At December 31, 1996 and 1995, the regulatory capital ratios of the Company and
the Bank were as follows:
<TABLE>
<CAPTION>
Company Bank
------------- -------------- Minimum
1996 1995 1996 1995 Requirement
---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Leverage Ratio 8.38% 7.25% 8.03% 6.97% 3%*
Tier One ratio 10.84% 9.99% 10.37% 9.58% 4%
Total ratio 11.75% 11.24% 11.28% 10.83% 8%
</TABLE>
- ---------------
* Banking regulators expect institutions to maintain an excess of 1 to
2% above the minimum.
Components of capital (000s omitted) as of December 31,:
<TABLE>
<CAPTION>
Company Bank
-------------------------------------------------
1996 1995 1996 1995
-------------------------------------------------
<S> <C> <C> <C> <C>
Tier I capital:
Stockholders' equity $ 135,742 $ 113,725 $ 129,596 $ 109,318
Minority interest 11,611 -- 11,611 --
Intangible assets (1,746) (892) (1,746) (892)
Net unrealized (gain) loss on
securities available for sale,
net of related income taxes 838 (2) 838 (2)
---------- ---------- ---------- ----------
Total Tier I 146,445 112,831 140,299 108,424
Tier II capital:
Eligible allowances for
credit losses 12,327 14,130 12,327 14,151
---------- ---------- ---------- ----------
Total Tier I and Tier II capital $ 158,772 $ 126,961 $ 152,626 $ 122,575
========== ========== ========== ==========
Net risk-adjusted assets $1,350,718 $1,129,817 $1,353,121 $1,131,476
========== ========== ========== ==========
Average quarterly assets at year end $1,748,225 $1,555,732 $1,747,096 $1,554,886
========== ========== ========== ==========
</TABLE>
In the opinion of management, these ratios are sufficient to protect depositors
and facilitate future growth. In March 1996, pursuant to discussions with its
regulatory authorities, the Company and the Bank began including certain assets
of Capital Factors in its capital ratio calculations which historically had not
been included. The December 31, 1995 capital ratios have been recalculated to
include the Capital Factors' assets. If such assets were not included, the
Company's and the Bank's capital ratios would have been higher.
-30-
<PAGE> 31
The Company's management continually reviews capital adequacy. The various
alternatives for generating equity from internal and external sources are
constantly under review to ascertain the most effective approach for the
Company. The Company has traditionally provided most of its capital through
retained earnings. For 1996 and 1995, respectively, the Company's internal
capital generation rate was 15.6% and 16.1%, respectively.
Bancorp currently pays stockholder dividends of 8.33 cents per share per
quarter. This dividend policy is dependent upon the Bank's ability to continue
the payment of dividends to Bancorp. Unforeseen changes in the financial
condition of Bancorp or Capital Bank, or actions by regulatory authorities,
could result in changes in the dividend policy.
-31-
<PAGE> 32
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
- ---------
Liquidity represents the Company's ability to meet customers' borrowing needs,
take advantage of investment opportunities, fund deposit withdrawals and
maintain reserve requirements. On the asset side, the primary sources of
liquidity are cash and due from banks, interest bearing deposits with banks,
Federal funds sold and other short-term investments, scheduled maturities and
paydowns of securities held to maturity, securities available for sale and
scheduled repayments on outstanding loans and receivables. The liquidity
available from any of the foregoing sources is reduced to the extent they are
pledged against any liabilities or otherwise restricted. On the liability side,
the principal source of liquidity is growth in deposits and other borrowings.
These primary sources of liquidity are supplemented by cash flows from the
Company's operating activities which generated approximately $34 million of
liquidity during 1996.
During 1996, the Company generated net cash flows of $93 million from its
financing activities, including $58 million from deposit growth, $26 million
from long-term borrowings by Capital Factors and $18 million from Capital
Factors Holding, Inc.'s sale of approximately 19% of newly issued shares of its
Common Stock. The deposit growth was generated internally through business
development and marketing efforts. In March 1996, Capital Factors entered into a
revolving credit facility with an unaffiliated lender which provides for maximum
borrowings of $40.0 million ($15.9 million of which was outstanding at December
31, 1996) and issued a subordinated note in the amount of $10.0 million to
another unaffiliated lender. See "Financial Condition -- Long-Term Debt" above
for more information.
The Company's investing activities utilized $160 million of the liquidity
generated from financing and operating activities. Net new loans amounted to
$111 million, and net new advances by Capital Factors amounted to $74 million.
Sales, maturities and paydowns of securities in excess of purchases generated
$21 million of liquidity. In addition, $5 million was generated from sales of
other real estate.
The liquidity position is monitored daily by management to maintain a level of
liquidity conducive to efficient operations and is continuously evaluated as
part of the asset/liability management process (as discussed further below) to
maintain liquidity levels conducive to efficient operations. Considerations in
managing the Company's liquidity position include scheduled cash flows from
existing assets and liabilities, as well as projected liquidity needs arising
from commitments to lend.
In the normal course of business, the Company utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These off-balance sheet activities include commitments to extend
credit, commercial letters of credit and standby letters of credit. The
liquidity, credit and market risks associated with these financial instruments
are generally managed in conjunction with the Company's balance sheet activities
and are subject to normal credit policies, financial controls and risk-limiting
and monitoring procedures. At December 31, 1996, the Company had outstanding
commitments to extend credit, commercial letters of credit and standby letters
of credit amounting to $222.8 million, $74.8 million and $18.2 million,
respectively. In the normal course of business, some of these commitments may
expire without being drawn upon. The Company expects to meet funding
requirements resulting from these commitments by using its traditional sources
of liquidity, including borrowings by Capital Factors.
Liquidity is also necessary at the Bancorp level. The ability of Bancorp to meet
debt service requirements, pay dividends to stockholders and satisfy other
liquidity needs is primarily dependent on Capital Bank's ability to continue the
payment of dividends. The ability of the Bank to pay dividends is generally
restricted by Florida statutes. At periodic intervals, State or Federal
regulatory agencies routinely examine Bancorp and the Bank as part of their
legally prescribed oversight of the banking industry and may further restrict
the payment of dividends or other activities by regulatory action. At December
31, 1996 the Bank was not subject to any restrictions other than statutory. At
year-end, approximately $35.5 million of the Bank's retained earnings were
available for dividend payments to Bancorp without regulatory approval.
For 1997, Bancorp's estimated debt service and stockholder dividend requirements
total approximately $2.9 million. At December 31, 1996, Bancorp had available
cash balances of $8.2 million. Management believes liquidity at December 31,
1996 was satisfactory.
-32-
<PAGE> 33
Asset/Liability Management and Interest Rate Risk
- -------------------------------------------------
The Company's exposure to interest rate changes is managed by a review of the
maturity and repricing characteristics of assets and liabilities, as well as the
composition of these items. Attention is directed primarily to assets and
liabilities that mature or can be repriced within a period of 30 to 365 days.
The Company matches the maturities of a significant portion of its assets and
liabilities to minimize variability in net interest income within a 12 to 18
month period. This practice serves to minimize both liquidity and interest rate
risks. Prudent risks are taken, however, by leaving certain assets and
liabilities unmatched in an effort to benefit from the interest rate sensitivity
created. The Company currently does not use off balance sheet derivative
instruments to manage interest rate risk.
Maintenance of satisfactory funding levels allows the Company to position itself
so that the risks of interest rate fluctuations are decreased. This, together
with a high percentage of variable rate assets, provides a more consistent
margin between interest earning assets and interest bearing liabilities. For
1996, the average rate paid on interest bearing deposit liabilities was 4.29%,
while the average rate paid for other interest bearing liabilities was 6.72%. To
the extent that non-deposit liabilities grow faster than deposits, the Company's
overall cost of funds will likely rise. At this time, management does not
believe these factors will have a significant adverse impact on net interest
income.
Interest rates earned and paid on interest bearing assets and liabilities are
influenced by both factors outside the control of management, such as current
market interest rates (e.g., prime, LIBOR) and factors controlled by management
(e.g., rates paid on deposits). Management can further influence net interest
income by adjusting the mix of assets and liabilities between fixed and floating
rate instruments, or adjusting the duration of these items. To an extent,
management's ability to control these factors are contingent upon customer
demand or acceptance of the products offered by the Company. At December 31,
1996, the Company's cumulative one-year gap (the difference between interest
bearing assets and interest bearing liabilities) was negative $48.6 million, or
approximately 3.6% of total earning assets. In computing the gap (as defined
below), all non-time interest bearing deposits, aggregating $302.7 million at
December 31, 1996, are assumed to reprice in 90 days or less. Management does
not believe the Company's operating results will be significantly impacted by
changes in interest rates over the next year.
Table 8 presents a summary analysis of maturity and repricing characteristics of
the Company's interest earning assets and interest bearing liabilities at
December 31, 1996. For purposes of this analysis, regular savings and NOW and
money market accounts are included as repricing in 90 days or less. The
difference between the maturities and repricing intervals applicable to interest
earning assets and interest bearing liabilities is commonly referred to as the
"gap."
-33-
<PAGE> 34
TABLE 8
INTEREST RATE SENSITIVITY BY MATURITY
OR REPRICING DATES
(In Millions of Dollars)
<TABLE>
<CAPTION>
90 days 91-180 181-365 Over
or less days days one year Total
------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Securities $ 22.4 $ 20.7 $ 12.0 $ 163.4 $ 218.5
Loans(1) 436.9 80.2 41.5 266.3 824.9
Other earning
assets(2) 325.2 -- -- .3 325.5
------ ------ ------ ------- -------
Total interest
earning assets 784.5 100.9 53.5 430.0 1,368.9
------ ------ ------ ------- -------
Interest bearing liabilities:
Interest bearing
deposits 489.1 117.3 109.0 65.6 781.0
Short-term borrowings 79.9 -- -- -- 79.9
Long-term debt 192.2 -- -- 10.0 202.2
------ ------ ------ ------- --------
Total interest
bearing liabilities 761.2 117.3 109.0 75.6 1,063.1
------ ------ ------ ------- --------
Gap 23.3 (16.4) (55.5) 354.4 $ 305.8
------ ------ ------ ------- ========
Cumulative Gap $ 23.3 $ 6.9 $(48.6) $ 305.8
====== ====== ====== =======
</TABLE>
- -------------------------
(1) Excludes non-accrual loans of $5.4 million.
(2) Excludes non-accrual advances of $660 thousand.
-34-
<PAGE> 35
RESULTS OF OPERATIONS
General
- -------
The Company recorded net income of $20.2 million in 1996 compared to $17.1
million in 1995 and $13.2 million in 1994. Primary earnings per share was $2.50
in 1996 compared to $2.25 in 1995 and $1.83 in 1994. On a fully diluted basis,
earnings per share was $2.50 in 1996 compared to $2.20 in 1995 and $1.80 in
1994. In 1996, the Company's return on average assets was 1.22% compared to
1.20% and 1.04% in 1995 and 1994, respectively. The return on average
stockholders' equity was 16.34% in 1996 compared to 16.71% in 1995 and 15.10% in
1994. The increase in income in 1996 compared to 1995 was primarily a result of
higher factoring revenues and lower other operating expenses (primarily at the
Bank) offset by higher salaries and employee benefits and provisions for credit
losses. The increase in income in 1995 compared to 1994 was primarily a result
of improved net interest margin after provisions for credit losses and higher
factoring revenue offset by higher other operating expenses and salaries and
employee benefits.
Lines of Business
- --------------------
Net interest income derived from domestic banking activities amounted to $49.2
million, $49.4 million and $47.1 million in 1996, 1995 and 1994, respectively.
These results reflect higher levels of average interest earning assets offset by
a decline in the net interest margin due to lower rates earned on loans and
higher rates paid on deposits. The increase in net interest income in 1995
compared to 1994 was due primarily to higher levels of average earning assets
which offset a slight decline in the net interest margin. Non-interest income
from domestic banking activities amounted to $18.4 million, $18.5 million and
$16.4 million in 1996, 1995 and 1994, respectively. The slight decrease in
non-interest income in 1996 compared to 1995 was primarily due to non-recurring
income in 1995 of approximately $1.2 million received in connection with the
early termination of a computer servicing contract. The increase in non-interest
income in 1995 compared to 1994 was due to various factors, including the
contract termination payment mentioned above. Operating results from domestic
activities in 1996 compared to 1995 were higher primarily as a result of lower
non-interest expenses and lower provisions for domestic loan losses. Based on
management's assessment of the allowance for loan losses, the provision for
domestic loan losses decreased $1.4 million, from $3.4 million for 1995 to $2.0
million for 1996. Operating results in 1995 compared to 1994 were slightly
higher primarily as a result of higher net interest income and non-interest
income and lower provisions for domestic loan losses substantially offset by
higher non-interest expenses.
The Company does not operate any foreign offices. Foreign banking operations
principally arise from the Company's trade finance lending to and issuance of
letters of credit on behalf of banks and financial institutions located in
Central and South America. Net interest income from foreign banking activities
amounted to $5.6 million, $6.3 million and $5.0 million in 1996, 1995 and 1994,
respectively. The decrease in net interest income in 1996 was primarily as a
result of a decrease in the net interest margin due to higher funding costs and
lower rates earned on foreign loans. The increase in net interest income in 1995
reflects an increase in average loans outstanding and higher average rates
earned compared to 1994. Non-interest income from foreign banking activities
primarily represents letter of credit fees and amounted to $4.3 million, $4.5
million and $5.6 million in 1996, 1995 and 1994, respectively. Other income in
1994 included securities gains of $1.1 million. Operating results from foreign
banking activities decreased primarily due to higher provisions for loan losses,
which totaled $3.3 million in 1996 compared to $211,000 in 1995 and a credit of
$2.3 million in 1994. The 1996 provision reflects the impact of foreign loan
charge offs, which totaled $3.4 million in 1996. For additional information, see
"Allowance for Loan Losses" below. The 1995 provision reflects approximately
$1.6 million in recoveries of 1994 charge offs and the improvement of other
potential problem foreign loans. In 1994, certain loans that were previously
charged off were partially recovered, and the status of other potential problem
foreign loans improved, resulting in a credit to the allowance.
-35-
<PAGE> 36
The Company's factoring activities continued to grow in 1996, due primarily to
the increase in new clients. Non-interest income, which primarily represents
factoring commissions, amounted to $30.7 million, $23.3 million and $20.0
million in 1996, 1995 and 1994, respectively, reflecting increased factored
accounts receivable from $1.5 billion in 1994 to $2.7 billion in 1996. Net
interest income derived from factoring activities amounted to $15.4 million,
$11.9 million and $7.3 million in 1996, 1995 and 1994, respectively. Growth in
average interest earning assets, primarily advances, in all periods due to
business development gave rise to these increases.
General corporate expenses in 1994 included one-time charges of approximately
$1.7 million relating to deferred compensation and other benefits paid to the
Company's former chairman upon his retirement.
Set forth on Table 9 is a summary of operating results for the Company's
domestic and international banking activities, as well as its factoring
activities. Revenues and expenses relating to factoring activities are generally
segregated and are easily identifiable. Non-interest revenues and expenses
associated with banking activities include allocations of certain items based on
management's assumptions, some of which are subjective in nature. Furthermore,
interest income and expense of banking activities reflect funds transfer pricing
which, while based on the Bank's actual external costs, may not reflect actual
results which may be achieved on a stand-alone basis.
-36-
<PAGE> 37
TABLE 9
BUSINESS SEGMENT DATA
(In Thousands of Dollars)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net interest income and
non-interest income:
Domestic banking activities $ 67,623 $ 67,865 $ 63,495
Foreign banking activities 9,937 10,824 10,610
---------- ---------- ----------
Total banking activities 77,560 78,689 74,105
Factoring activities 46,125 35,145 27,276
Intercompany (224)(1) (149)(1) 16 (1)
---------- ---------- ----------
Total $ 123,461 $ 113,685 $ 101,397
========== ========== ==========
Income before income taxes:
Domestic banking activities $ 21,191 $ 13,967 $ 13,033
Foreign banking activities 1,263 5,723 5,782
---------- ---------- ----------
Total banking activities 22,454 19,690 18,815
Factoring activities 18,757 14,227 10,855
Minority interest in factoring
activities, net of applicable
taxes (1,146) -- --
Corporate and other (6,197)(2) (6,355)(2) (8,492)(2)
---------- ---------- ----------
Total $ 33,868 $ 27,562 $ 21,178
========== ========== ==========
<CAPTION>
Average Balance for the Year Ended December 31
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Identifiable assets:
Domestic banking $1,114,412 $1,008,845 $1,009,378
Foreign banking 136,443 132,704 101,438
---------- ---------- ----------
Total banking 1,250,855 1,141,549 1,110,816
Factoring 463,022 332,524 248,293
Intercompany (62,478)(3) (49,524)(3) (86,030)(3)
---------- ---------- ----------
Total assets $1,651,399 $1,424,549 $1,273,079
========== ========== ==========
</TABLE>
- ------------------
(1) Intercompany operating results primarily reflect service charges on Capital
Factors' accounts at the Bank.
(2) Corporate and other includes costs associated with various activities and
functions, including the operations of Bancorp (parent only), certain
senior management of the Bank and other administrative costs.
(3) Intercompany assets primarily represents loan balances payable by Capital
Factors to the Bank.
-37-
<PAGE> 38
Net Interest Income
- -------------------
Net interest income is the difference between interest and fees earned on loans
and investments and interest paid on deposits and other sources of funds. Net
interest income totaled $70.3 million, $67.6 million and $59.4 million in 1996,
1995 and 1994, respectively. Loan fees included in net interest income amounted
to $2.1 million, $1.6 million and $1.8 million in 1996, 1995 and 1994,
respectively. Net interest income on a fully tax-equivalent basis, including
loan fees, totaled $71.2 million in 1996 compared to $68.8 million and $61.1
million in 1995 and 1994, respectively.
Net interest income can be viewed as the product of average earning assets and
the net interest margin. Net interest income in 1996 increased $2.7 million over
1995 and was comprised of an increase of $10.5 million in interest income offset
by an increase of $7.8 million in interest expense. The increase in interest
income was due to an increase in average interest earning assets to $1.317
billion in 1996 from $1.152 billion in 1995, offset by a decline in the average
yield to 9.22% in 1996 from 9.46% in 1995. Average interest bearing liabilities
increased to $1.002 billion in 1996 from $875.0 million in 1995. The increase in
average interest bearing liabilities occurred primarily in time deposits and
long-term borrowings. Approximately 66% of the increase in interest expense was
attributable to interest expense on deposits and is primarily the result of an
increase in average time deposits, and to a lesser extent in the average rates
paid on such deposits. Average time deposits increased $93.1 million, or 27%, in
1996 to $443.3 million and represented 61% of average interest bearing deposits
in 1996 compared to 54% in 1995. The combined effects of lower asset yields, and
higher funding costs resulted in a drop in the net interest margin from 5.84% to
5.45%.
Net interest income in 1995 increased $8.1 million over 1994, comprised of an
increase of $24.8 million in interest income offset by an increase of $16.6
million in interest expense. The increase in net interest income was due to an
increase in average interest earning assets to $1.152 billion in 1995 from
$1.033 billion in 1994, combined with a shift in mix to higher yielding loans
and advances. The net interest margin declined to 5.84% in 1995 from 5.91% in
1994. The yield on average interest earning assets increased from 8.34% in 1994
to 9.46% in 1995 due to higher yields on all categories of interest earning
assets. Average interest bearing liabilities increased to $875.0 million in 1995
from $770.8 million 1994, while the average rate paid on these liabilities
increased to 4.77% from 3.26%. The increase in average interest bearing
liabilities occurred primarily in long-term borrowings and time deposits.
Capital Factors' average long-term borrowings were $140.6 million in 1995
compared to $45.4 million in 1994.
See "Asset/Liability Management and Interest Rate Risk" above for a discussion
of factors that may affect net interest income.
Tables 10 and 11 set forth information on yields earned and rates paid by the
Company as well as changes in the composition of net interest income for each of
the years in the three year period ended December 31, 1996. Yields and interest
on tax-exempt loans and securities have been adjusted to reflect tax-equivalent
basis using the Federal tax rate of 35%. Loans and accounts receivable on
non-accrual status have been included in average balances for purposes of
computing average yields. Yields on securities available for sale have been
computed based on amortized cost. For the years ended December 31, 1996, 1995
and 1994, average foreign assets represented 8%, 9% and 7% of total average
assets, respectively. Average foreign liabilities represented 13%, 16% and 20%
of total average liabilities. Average foreign deposits included in average
interest bearing deposits and average non-interest bearing deposits amounted to
$180.4 million, $144.4 million and $159.7 million for 1996, 1995 and 1994,
respectively.
-38-
<PAGE> 39
TABLE 10
YIELDS EARNED AND RATES PAID
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- --------------------------- ---------------------------
Average Average Average
Average Yield Average Yield Average Yield
Balance Interest Or Rate Balance Interest Or Rate Balance Interest Or Rate
---------- -------- ------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net of unearned
income:
U.S. Borrowers $ 614,046 $ 60,418 9.84% $ 536,405 $ 54,555 10.17% $ 471,891 $ 43,611 9.24%
Foreign Borrowers 129,180 9,641 7.46 125,785 10,205 8.11 93,906 6,275 6.68
Tax Exempt 14,617 2,344 16.04 19,570 3,173 16.21 26,226 4,227 16.12
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Total loans 757,843 72,403 9.55 681,760 67,933 9.96 592,023 54,113 9.14
Accounts receivable
advances - factoring
subsidiary 240,477 29,455 12.25 185,795 23,803 12.81 148,787 16,747 11.26
Securities held to maturity:
Taxable 26,770 2,194 8.19 74,223 4,735 6.38 64,464 3,784 5.87
Tax-exempt 2,957 317 10.72 3,360 357 10.62 4,254 452 10.62
Securities available
for sale:
Taxable 202,803 12,497 6.16 139,388 8,360 6.00 139,950 7,903 5.65
Federal funds sold
and other interest earning
assets 85,980 4,523 5.26 67,395 3,841 5.70 83,867 3,201 3.82
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Total interest earning
assets 1,316,830 121,389 9.22 1,151,921 109,029 9.46 1,033,345 86,200 8.34
--------- -------- --------
Less allowance for loan losses
and doubtful accounts (13,239) (13,549) (15,076)
Cash and due from banks 93,284 86,550 63,630
Due from customers on
acceptances 31,442 28,827 30,340
Other real estate 4,949 10,911 13,436
Other assets 218,133 159,889 147,404
---------- ---------- ----------
Total $1,651,399 $1,424,549 $1,273,079
========== ========== ==========
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Savings and Money Market $ 285,532 $ 7,022 2.46% $ 295,212 $ 7,046 2.39% $ 350,889 $ 6,845 1.95%
Time 443,264 24,225 5.47 350,161 19,026 5.43 278,028 10,656 3.83
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Total interest bearing
deposits 728,796 31,247 4.29 645,373 26,072 4.04 628,917 17,501 2.78
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Federal funds purchased and
short-term borrowings:
Domestic banks 109 6 5.59 -- -- -- 65 2 3.01
Short-term borrowings 85,027 3,830 4.50 87,243 4,504 5.16 94,322 3,978 4.22
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
85,136 3,836 4.51 87,243 4,504 5.16 94,387 3,980 4.22
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Long-term borrowings 187,864 14,509 7.72 142,427 11,176 7.85 47,486 3,633 7.65
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Total interest bearing
liabilities 1,001,796 49,592 4.95 875,043 41,752 4.77 770,790 25,114 3.26
---------- --------- ----- ---------- -------- ----- ---------- -------- -----
Non-interest bearing
deposits 305,010 292,625 276,000
Bank acceptances outstanding 31,443 28,827 30,340
Other liabilities 184,521 125,736 108,516
Minority interest in
consolidated subsidiary 5,009 -- --
Stockholders' equity 123,620 102,318 87,433
---------- ---------- ----------
Total liabilities,
minority interest and
stockholders' equity $1,651,399 $1,424,549 $1,273,079
========== ========== ==========
Net interest earnings/
yield $ 71,797 5.45% $ 67,277 5.84% $ 61,086 5.91%
========= ===== ======== ===== ======== =====
Net interest spread 4.27% 4.69% 5.08%
===== ===== =====
Utilization rate 79.74% 80.86% 81.17%
===== ===== =====
</TABLE>
-39-
<PAGE> 40
TABLE 11
RATE VOLUME ANALYSIS (1)
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1996 compared to 1995 1995 compared to 1994
-------------------------------------- ------------------------------------
Change Change Net Change Change Net
Due to Due to Increase Due to Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Changes in Income and Expense
Interest on interest earning assets:
Loans
U.S. borrowers $ 7,768 $ (1,905) $ 5,863 $ 6,262 $ 4,682 $ 10,944
Foreign borrowers 265 (829) (564) 2,358 1,572 3,930
Tax-exempt (799) (30) (829) (1,076) 22 (1,054)
Accounts receivable advances -
factoring subsidiary 6,851 (1,199) 5,652 4,453 2,603 7,056
Securities held to maturity:
Taxable (3,458) 917 (2,541) 597 354 951
Tax-exempt (43) 3 (40) (95) -- (95)
Securities available for sale:
Taxable 3,856 281 4,137 (33) 490 457
Federal funds sold and other
interest earning assets 1,019 (337) 682 (784) 1,424 640
------- -------- -------- -------- --------- --------
Total $15,459 $ (3,099) $ 12,360 $ 11,682 $ 11,147 $ 22,829
======= ======== ======== ======== ========= ========
Interest on interest bearing
liabilities:
Savings and Money Market
deposits $ (234) $ 210 $ (24) $ (1,208) $ 1,409 $ 201
Time deposits 5,073 126 5,199 3,342 5,028 8,370
Federal funds purchased and
short-term borrowings (102) (566) (668) (335) 859 524
Long-term debt 3,537 (204) 3,333 7,357 186 7,543
------- -------- -------- -------- --------- --------
Total $ 8,274 $ (434) $ 7,840 $ 9,156 $ 7,482 $ 16,638
======= ======== ======== ======== ========= ========
</TABLE>
- ---------------------
(1) Because of the numerous and simultaneous balance and rate changes during the
periods, it is not possible to allocate the change in net interest income
precisely between balances and rates. For purposes of this table, changes
that are not solely attributable to balance changes or rate changes have
been allocated equally to the volume and rate changes above.
-40-
<PAGE> 41
Provision for Loan Losses
- -------------------------
The allowance for loan losses is maintained at a level deemed adequate by
management to absorb potential loan losses in the portfolio after evaluating the
loan portfolio, the financial condition of borrowers, current economic
conditions, changes in the nature and volume of the portfolio, past loan loss
experience and other pertinent factors. Many of these factors involve a
significant degree of estimation and are subject to rapid changes which could be
unforeseen by management. As a consequence, the possibility exists that
management's evaluation of the adequacy of the allowance could change, and such
change could be a material amount, as additional information becomes known.
While the Company considers the allowance for loan losses to be adequate at
December 31, 1996, management is unable to predict the amount, if any, of future
provisions to the allowance. For additional information, see "Allowance for Loan
Losses" below.
The provision for loan losses was $5.3 million in 1996 compared to $3.6 million
in 1995 and $3.5 million in 1994. The higher provision in 1996 reflects the
impact of losses in connection with several foreign loans. The lower provisions
in 1995 and 1994 reflect recoveries of $1.6 million and $1.5 million in 1995 and
1994, respectively, relating to certain foreign loans which had previously been
charged off.
Provision for Credit Losses - Capital Factors
- ---------------------------------------------
The allowance for doubtful accounts for Capital Factors is maintained at a level
deemed adequate to absorb potential losses. The adequacy of the provision for
credit losses recorded by Capital Factors is assessed by management based in
part on the level of net charge offs relative to accounts receivable purchased.
These statistics are believed to be significant indicators of inherent losses
since the receivables portfolio turns over approximately seven times each year.
Accounts receivable which are past due are charged off unless, in the opinion of
management, collection is likely from the customer, client or collateral
realization, if any. In making this determination, management considers the
quality of the collateral, the creditworthiness of the customer and client,
economic conditions and other factors which may be relevant. This statistical
assessment is supplemented by a review of the recorded allowance for credit
losses at each month end relative to total accounts receivable at month end,
taking into consideration specific potential problem accounts, accounts
purchased with recourse where payment has not been made by Capital Factors to
its client, and other factors which may be relevant.
The provision for doubtful accounts amounted to $3.8 million, $2.2 million and
$2.2 million for 1996, 1995 and 1994, respectively. For the years ended December
31, 1996, 1995 and 1994, net charge offs as a percentage of accounts receivable
purchased was .14%, .05% and .17%, respectively. For the same periods, the
percentage of provisions for credit losses to accounts receivable purchased was
.14%, .11% and .15%, respectively. Based on these relationships, and a review of
the recorded allowance and accounts receivable at each period end, management
believes the provisions and allowance to be adequate to absorb known and
inherent losses in the accounts receivable portfolio. Because the assessment of
the adequacy of the allowance and provisions for credit losses involve a
significant degree of estimation, and are subject to change, future provisions
for credit losses may be greater or less than actual charge offs.
Other Income
- ------------
Other income totaled $53.2 million, $46.1 million and $41.9 million in 1996,
1995 and 1994, respectively.
Factoring revenues amounted to $30.4 million or 57% of total other income in
1996 compared to $23.1 million or 50% of total other income in 1995 and $20.0
million or 48% of total other income in 1994. The growth in factoring revenues
is attributable to overall expansion of factoring activities. The Company,
through Capital Factors, operates factoring offices in Charlotte, North
Carolina, Ft. Lauderdale, Florida, Los Angeles, California and New York, New
York. Accounts receivable purchased totaled $2.651 billion in 1996 compared to
$2.001 billion in 1995 and $1.537 billion in 1994. Factoring commissions
increased 34% to $26.1 million in 1996 from $19.5 million in 1995 and 12% in
1995 from $17.4 million in 1994. Although Capital Factors experienced increased
commission income as a result of increased factored accounts receivable,
commission income as a percentage of factored accounts receivable declined from
1.13% in 1994 to .98% in 1995 and 1996. This decline was primarily the result of
lower factoring fees charged to high volume clients in the New York market and a
lower fee structure, partly because of high volume clients, in the Charlotte
market. Capital Factors typically
-41-
<PAGE> 42
receives lower factoring fees from high volume customers because, among other
reasons, high volume clients do not have the same servicing needs as smaller
clients, requiring less labor intensive services to be performed by Capital
Factors, and because there is increased competition for such client's business.
Service charges on deposits amounted to $13.1 million or 25% of total other
income in 1996 compared to $12.6 million or 27% of total other income in 1995
and $11.8 million or 28% in 1994. The increase in service charge income is
primarily due to the adjustment to the pricing of some services during 1996 and
1994.
Letter of credit fees totaled $4.1 million in 1996 compared to $4.2 million in
1995 and $4.0 million in 1994. These fees represented 8%, 9% and 9% of
non-interest income in 1996, 1995 and 1994, respectively. Total fees have been
relatively unchanged between 1994 and 1996, as higher transaction volume has
been offset by lower pricing due to competitive pressures. The Company conducts
its international operations with customers located primarily in Central and
South America. By issuing and confirming letters of credit for its clients, the
Company has traditionally generated substantial fee income. Due to the economic
and political environments of some of these nations, as well as competitive
factors, the demand for the issuance or confirmation of letters of credit may
fluctuate.
Net securities gains amounted to $18,000 in 1996 compared to $12,000 in 1995 and
$1,213,000 in 1994. Included in securities gains in 1994 are realized gains of
$1.1 million on the sale of certain floating rate Argentine bonds, received in
connection with a prior Brady Plan restructuring. During 1996 the Company sold
one municipal bond that was classified as held to maturity and realized a gain
of $15,000. The Company sold this bond in reaction to financial deterioration of
the issuer.
Other Expenses
- --------------
Other expenses totaled $79.4 million, $80.3 million and $74.5 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
Salaries and employee benefits amounted to $41.8 million in 1996 compared to
$38.0 million in 1995 and $36.6 million in 1994, respectively. Salaries and
employee benefits increased $3.8 million in 1996 and $1.3 million in 1995 as a
result of merit increases, workforce growth and increased benefit costs.
Approximately $3.6 million of the increase was at Capital Factors due to
expansion of factoring activities. In addition, salaries and employee benefits
in 1994 included $1.7 million for deferred compensation and other benefits
related to the retirement of the Company's former Chairman.
Other operating expenses amounted to $29.8 million, $34.9 million and $30.3
million in 1996, 1995 and 1994, respectively. The 1996 decrease in other
operating expenses partly reflects $2.7 million in losses from overdrafts
related to one customer in 1995 (see further discussion below). In addition,
during 1996, other real estate expenses decreased $2.4 million compared to 1995
primarily due to lower provisions for losses. During 1995, these expenses
increased $4.6 million primarily due to a $2.7 million provision to fully
reserve for potential overdraft losses mentioned above and increases in legal
settlements and advertising expenses offset by a decrease in insurance expense
resulting from reduction in the FDIC assessment rate for the second half of
1995.
Total overdraft losses amounted to $489,000, $3.5 million and $996,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. During the first
quarter of 1995, through several related accounts, one customer created net
overdrafts of approximately $2.7 million in connection with transactions
occurring over a period of approximately two weeks. The overdrafts resulted when
checks drawn on another institution were returned to the Bank for insufficient
funds, after the customer had made withdrawals from Capital Bank. The customer
was placed in involuntary bankruptcy as a result of claims asserted by the Bank
and other creditors, and the entire overdraft was charged to expense. The Bank
has a judgment against the customer, which it has been unable to collect. To
mitigate the risk that similar losses may occur in the future, internal review
and approval procedures were strengthened by management. At December 31, 1996
and 1995, total overdraft balances were $3.8 million and $3.2 million,
respectively, and are included in loans in the consolidated statements of
condition. Management does not anticipate any material losses associated with
overdraft balances at December 31, 1996.
Expenses relating to the writedown and maintenance of other real estate totaled
$566,000, $2.9 million and $2.9 million in 1996, 1995 and 1994, respectively,
and are included in other operating expenses discussed above. Other real estate
amounted to $3.6 million at
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<PAGE> 43
December 31, 1996 compared to $6.8 million at December 31, 1995 and $14.7
million at December 31, 1994. The Company is aggressively pursuing disposal of
these properties.
Provision (Benefit) for Income Taxes
- ------------------------------------
The Company's effective tax rate varies with changes primarily in the derivation
of pre-tax income by state, in the proportion of tax-exempt income and in
corporate tax rates. The provision for income taxes for 1996 aggregated 39% of
pre-tax income, after considering effect of minority interest in net income of
consolidated subsidiary, compared with 38% in 1995 and 1994. The higher
effective tax rate in 1996 as compared to 1995 and 1994 resulted primarily from
lower tax-exempt interest income.
Impact of Inflation and Changing Prices
- ---------------------------------------
The impact of inflation on the Company is reflected primarily in the increased
costs of operations. These increased costs are generally passed on to customers
in the form of increased service fees. Since the primary assets and liabilities
of the Company are monetary in nature, the impact of inflation on interest rates
has, and is expected to continue to have, an effect on net income.
In structuring fees, negotiating loan margins and developing customer
relationships, management concentrates its efforts on maximizing earnings
capacity while attempting to contain increases in operating expenses. In
addition, management continually reviews the feasibility of new and additional
fee-generating services to offset the effects of inflation and changing prices
with an objective of increased earnings.
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<PAGE> 44
ASSET QUALITY REVIEW
General
- -------
The Bank and Capital Factors manage the risk characteristics of their lending
activities in several ways. Together with credit evaluations of borrowers, risk
is monitored and controlled by procedures which include periodic reviews by
management and industry specialists, industry diversification, geographic
diversification and established lending limits on certain segments of the
portfolio. Risk is further minimized by established lending procedures such as
retaining collateral deemed adequate at the time of the loan and requiring
guarantees and commitments of principal parties along with the maintenance of
compensating balances. Management attempts to adhere to these procedures to
minimize the adverse impact from any one event or set of conditions.
Notwithstanding the procedures established to manage risk characteristics of the
portfolios, in certain instances, loans and receivables are charged off as
uncollectible. Management maintains the allowances for loan and receivable
losses at levels it believes to be sufficient to meet the present and potential
risk characteristics inherent in the loan and receivables portfolios, based on
information currently available.
Risk Elements - Non-accruing and Past Due Loans and Advances
- ------------------------------------------------------------
Past due and non-accruing loans are reviewed regularly in connection with
management's review of the allowance for loan losses as it relates to the
evaluation of collateral and the prospects for repayment of principal and
interest. Loans are placed on non-accrual status when management deems that
collectibility of interest is doubtful. Generally, loans that are 90 days or
more past due are placed on non-accrual status unless they are well secured and
in the process of collection. When a loan is placed on non-accrual status, any
uncollected interest is reversed and charged against current income. Interest
subsequently collected on loans which have been placed on non-accrual status is
generally applied against principal but may be recognized as income on the cash
basis if full collection of principal is reasonably assured based on the value
of underlying collateral or other factors. Charge offs to the allowance are made
when a loss is deemed probable. See Table 12 below for a five-year summary of
non-accrual, past due and other potential problem loans.
Domestic non-accrual loans aggregated $5.3 million at December 31, 1996,
compared to $3.8 million at year end 1995. Domestic non-accrual loans aggregated
.9% and .6% of total domestic loans at December 31, 1996 and 1995, respectively.
The increase in domestic non-accrual loans during 1996 primarily resulted from
the transfer of commercial loans with three borrowers totaling $1.8 million and
one real estate loan totaling $1.0 million from accrual status to non-accrual
status. Included in domestic non-accrual loans at December 31, 1996 and 1995
were commercial and real estate loans totaling $4.8 million and $2.8 million,
respectively, that were deemed impaired. Also, at December 31, 1995 were two
commercial loans with one borrower that were deemed impaired and were still
accruing interest income. These loans were transferred to non-accrual status
during 1996 and were still deemed impaired at December 31, 1996.
Foreign non-accrual loans, all of which were deemed impaired, aggregated $96,000
and $2.1 million at December 31, 1996 and 1995, respectively. Foreign
non-accrual loans represented .1% and 1.6% of total foreign loans at December
31, 1996 and 1995, respectively. The decrease in foreign non-accrual loans is
primarily the result of the charge offs during 1996. See "Allowance for Loan
Losses" below for additional discussion.
Domestic loans 90 days or more past due at December 31, 1996 and still accruing
interest aggregated $264,000 or less than .1% of domestic loans outstanding,
compared with $1.1 million or .2% of domestic loans outstanding at December 31,
1995. Included in domestic loans 90 days or more past due were commercial and
consumer loans of $152,000 and $112,000, respectively, at December 31, 1996, as
compared to $689,000, $281,000 and $162,000 for real estate, commercial and
consumer loans, respectively, at December 31, 1995.
There were no foreign loans 90 days or more past due and still accruing interest
at December 31, 1996 and 1995. Foreign loans 90 days or more past due at
December 31, 1994 and still accruing interest aggregated $1.5 million and
related to one loan. This loan was collected in full in 1995.
Advances made by Capital Factors are placed on non-accrual status when the loan
balance, including interest, is considered impaired and exceeds the estimated
value of the
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<PAGE> 45
underlying receivables or collateral. Non-accrual advances totaled $660,000 at
December 31, 1996, compared to $2.2 million at December 31, 1995. Non-accrual
advances are considered in the assessment of the allowance for doubtful accounts
for adequacy, see "Provision for Credit Losses - Capital Factors" above and
"Allowance for Credit Losses - Capital Factors" below. Non-accrual advances at
year end 1995 included $1.4 million due from one customer which were repaid in
early 1996 from collections of underlying accounts receivable.
Risk Elements - Restructured Loans and Restructured Assets
- ----------------------------------------------------------
See Table 12 for a five year history of restructured loans and restructured
assets at each year end.
Restructured loans at December 31, 1996 represent two real estate loans which
were restructured as to interest rates, in 1991 and 1992. At December 31, 1996,
these loans were in compliance with terms.
Restructured assets at December 31, 1996 represent Mexican and Argentine debt
securities received in exchange for loans in connection with restructurings in
1989 and 1993. These securities are included in the available for sale portfolio
(at market value) and were in compliance with terms at December 31, 1996. The
face amount of these securities aggregate $5.1 million.
Risk Elements - Other Potential Problem Loans
- ---------------------------------------------
In addition to non-accruing loans and loans 90 days or more past due, management
has identified other potential problem loans where known information about
possible credit problems causes management to have doubts as to the ability of
borrowers to comply with present loan repayment terms. In placing loans in this
category, management considers the current status of the loan and previous
payment history, the nature and quality of collateral, current economic
conditions which may affect the borrower, and other information deemed pertinent
in the circumstances. Other potential problem loans at December 31, 1996 totaled
$5.5 million, and primarily consisted of one real estate loan of $2.7 million
and commercial loans of $2.4 million. At December 31, 1995, other potential
problem loans to domestic borrowers aggregated $6.5 million and included one
real estate loan of $4.2 million, commercial loans of $2.1 million and consumer
loans of $209,000. The decrease during 1996 was due in part to improved
financial condition of the borrowers, and the transfer of one commercial loan
to non-accrual status.
There were no potential problem loans to foreign borrowers at December 31, 1996,
however, such loans totaled $1.2 million at December 31, 1995, representing
trade-related loans to a Panamanian bank. The loans were in compliance with
terms at December 31, 1995, however, in early 1996, supervision of the borrower
was taken over by the Panamanian government and these loans were charged off in
the second quarter of 1996.
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<PAGE> 46
TABLE 12
NON-ACCRUAL, PAST DUE, OTHER POTENTIAL
PROBLEM LOANS AND RESTRUCTURED LOANS
AND RESTRUCTURED ASSETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual
loans:
Domestic $ 5,301(1) $ 3,813 $ 5,491 $ 4,522 $ 17,128
Foreign 96(1) 2,072 334 7,312 8,134
90 days past due
or more:
Domestic 264 1,132 410 477 2,984
Foreign -- -- 1,500 -- --
-------- -------- -------- -------- --------
Sub Total 5,661 7,017 7,735 12,311 $ 28,246
Non-accrual advances 660 2,184 739 385 1,082
-------- -------- -------- -------- --------
Total $ 6,321 $ 9,201 $ 8,474 $ 12,696 $ 29,328
======== ======== ======== ======== ========
Other potential
problem loans $ 5,532 $ 7,697 $ 2,006 $ 15,100 $ 11,100
======== ======== ======== ======== ========
Restructured
loans (2) $ 8,293 $ 8,433 $ 8,559 $ 8,663 $ 15,301
======== ======== ======== ======== ========
Restructured
assets (3) $ 3,593 $ 3,137 $ 2,544 $ 4,985 $ 1,975
======== ======== ======== ======== ========
</TABLE>
- -------------------------
(1) During 1996, interest income of $379 thousand and $25 thousand on domestic
and foreign loans, respectively, would have been recorded if these loans
had been current in accordance with their original terms and had been
outstanding throughout the period or since origination, if held for part of
the period. Interest income that was recorded on these loans during 1996,
was $284 thousand on domestic loans and $9 thousand on foreign loans.
(2) Represents the aggregate remaining balance at each year end of loans
classified as troubled debt restructurings as defined by Statement of
Financial Accounting Standards No. 15. These loans were in compliance
with terms at December 31, 1996.
(3) Represents securities available for sale (at market value) received in
connection with restructured foreign loans. See "Foreign Outstandings"
below for discussion on foreign debt securities.
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<PAGE> 47
FOREIGN OUTSTANDINGS
Performing trade credits consist primarily of refinanced letters of credit,
acceptances purchased and pre-export financings principally to banks that are
located in foreign countries. Cash collateral maintained at Capital Bank as
offsets to outstanding foreign loans totaled $23.9 million at December 31, 1996
compared to $19.2 million and $14.6 million at December 31, 1995 and 1994,
respectively.
Foreign debt securities include $3.6 million, $3.1 million and $2.5 million at
December 31, 1996, 1995 and 1994, respectively, of securities available for sale
(at market value) received in connection with loan restructurings in 1993 and
1989. Foreign debt securities also include $4.0 million at the three respective
dates in securities held to maturity which were acquired for investment
purposes. All foreign debt securities were in compliance with terms at December
31, 1996.
Customers liability on acceptances represent drafts accepted under trade finance
letters of credit issued primarily on behalf of foreign banks. Cash collateral
maintained at Capital Bank as offsets to acceptances aggregated $2.3 million,
$4.3 million and $2.2 million at December 31, 1996, 1995 and 1994, respectively.
Set forth on Table 14 is a list of cross border outstandings at December 31,
1996, 1995 and 1994 of those countries for which the total amount of
outstandings (loans, acceptances, acceptances purchased, pre-export financings
and other interest earning assets), net of (a) any written guarantees of
principal or interest by domestic or other non-local third parties (other than
the foreign government) and (b) the value of any tangible liquid collateral
which may be netted against the outstandings, exceeds 1% of consolidated total
assets. See Table 15 for analyses of 1996 activity for those countries where
total net outstandings exceeded 1% of consolidated total assets at December 31,
1996.
At December 31, 1996, there were no net cross border outstandings that exceeded
.75% but were less than 1% of consolidated total assets. At December 31, 1995,
net cross border outstandings to Ecuador and El Salvador, aggregating $14.4
million and $13.6 million, respectively, exceeded .75% but were less than 1% of
consolidated total assets. At December 31, 1994, the cross border outstandings
to Peru, Ecuador and Bolivia, aggregating $13.2 million, $12.9 million and $11.0
million, respectively, exceeded .75% but were less than 1% of consolidated total
assets.
In December 1994, the Mexican government devalued the peso, resulting in
substantial economic uncertainty and volatility which continued into 1995. The
devaluation of the Mexican peso also created or added to economic uncertainties
in other Latin American countries. Declining confidence in local banking systems
led to a shift in deposits out of some of these countries and from smaller banks
to larger banks within these countries. The impact was especially significant in
Argentina, where total bank deposits declined during the first half of 1995,
leading to the cessation of operations by some banks. These events have affected
banks which were or continue to be customers of the Bank, resulting in an
increase in charge offs and non-accrual loans related to Argentine borrowers.
Further deterioration in the repayment capacity of Argentine borrowers or
borrowers located in other Latin American countries could result in additional
non-accrual loans, charge offs or additions to the allowance for loan losses in
amounts not determinable at this time. See "Allowance for Loan Losses" below for
additional discussion regarding the adequacy of the allowance.
Restructured Foreign Assets
- ---------------------------
The Company did not enter into any restructuring arrangements involving foreign
loans in 1996. At December 31, 1996, the Company was not involved in any
discussions regarding the restructuring of foreign loans and had no commitments
to extend additional credit under restructuring arrangements completed in prior
years. See Table 12 for the remaining balance of restructured assets.
Allocated Transfer Risk Reserve (ATRR)
- --------------------------------------
The Comptroller of the Currency, Board of Governors of the Federal Reserve
System and Federal Deposit Insurance Corporation have jointly issued rules
requiring banking institutions to establish special reserves (the Allocated
Transfer Risk Reserves, or
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<PAGE> 48
"ATRR") against the risks presented in certain international assets when the
Federal banking agencies determine that such reserves are necessary. The rules
provide that, for regulatory purposes, the ATRR is to be accounted for
separately from the general allowances for loan losses and shall not be included
in the banking institution's capital or surplus. The rules also provide that no
ATRR provisions are required if the banking institution writes down the assets
to the requisite amount, or if there exists tangible, liquid collateral located
outside of the debtor country. At December 31, 1996 the Company had no asset
which required ATRR.
Notwithstanding regulatory requirements to record ATRR, management assesses the
ultimate collectibility of foreign assets and, when deemed appropriately, may
record additional reserves or charge off assets in excess of ATRR requirements.
Set forth on Table 13 is a summary of foreign outstandings by type and
geographic distribution.
TABLE 13
FOREIGN OUTSTANDINGS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
----------------------------------------
By type (1)(2): 1996 1995 1994
-------- -------- ----------
<S> <C> <C> <C>
Performing trade credits $141,620 $124,501 $ 111,150
Other performing loans 3,767 1,050 3,832
Non-accrual loans 96 2,072 334
-------- -------- ----------
Total loans 145,483 127,623 115,316
Debt securities 7,618 7,162 6,569
Customers liability on
acceptances 28,284 29,643 28,082
Other assets 2,576 1,991 1,677
-------- -------- ----------
Total (3) $183,961 $166,419 $ 151,644
======== ======== ==========
Geographic distribution (1)(2):
Latin America and
Caribbean $179,796 $160,717 $ 146,767
Middle East 4,099 4,152 4,164
Other regions 66 1,550 713
-------- -------- ----------
Total (3) $183,961 $166,419 $ 151,644
======== ======== ==========
</TABLE>
- -----------------------
(1) All amounts are prior to any reduction for written guarantees by domestic or
non-local third parties, or tangible liquid collateral which may be netted
against the outstandings.
(2) All foreign outstandings are denominated in U.S. dollars, except for certain
other assets amounting to $101.5 thousand, $92.7 thousand and $92.1 thousand
at December 31, 1996, 1995 and 1994, respectively.
(3) Amounts exclude $1.3 million, $1.4 million and $300 thousand of allowance
for foreign loan losses.
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<PAGE> 49
TABLE 14
FOREIGN OUTSTANDINGS IN EXCESS OF 1% OF ASSETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Debt Aggregate Cash Net
Loans(1) Securities Acceptances(1) Other Outstandings Collateral Outstandings
--------- ------------- ------------- -------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Argentina $12,345 $ 2,139 $ 6,153 $ 227 $20,864 $ (621) $ 20,243
Brazil 18,699 -- 4,531 268 23,498 (345) 23,153
Guatemala 15,347 -- 3,044 175 18,566 (934) 17,632
Peru 34,652 -- 818 891 36,361 (7,234) 29,127
At December 31, 1995:
Argentina 11,762 1,866 3,192 201 17,021 (671) 16,350
Brazil 17,422 -- 5,860 276 23,558 (371) 23,187
Guatemala 18,827 -- 2,211 251 21,289 (3,175) 18,114
Peru 18,242 -- 1,474 82 19,798 (1,288) 18,510
At December 31, 1994:
Argentina 10,301 1,477 5,243 147 17,168 (1,039) 16,129
Brazil 16,910 -- 2,312 205 19,427 (628) 18,799
Mexico 12,865 1,067 950 143 15,025 (883) 14,142
</TABLE>
- ---------------------------
(1) Loans and Acceptances are primarily composed of short-term trade related
balances outstanding to banks and other financial institutions.
-49-
<PAGE> 50
TABLE 15
CHANGES IN OUTSTANDINGS OF SELECTED
FOREIGN COUNTRIES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Argentina Brazil Guatemala Peru
--------- ------ --------- ----
<S> <C> <C> <C> <C>
Aggregate outstandings,
January 1, 1996 $ 17,021 $ 23,558 $ 21,289 $ 19,798
Net change in short-term
outstandings 3,523 (160) (2,723) 16,416
Changes in other outstandings:
Additional outstandings 46 220 -- 794
Interest income accrued 1 5 -- 29
Collections of principal -- (120) -- (649)
Collections of interest -- (5) -- (27)
Other changes 273 -- -- --
-------- -------- -------- --------
Aggregate outstandings,
December 31, 1996 $ 20,864 $ 23,498 $ 18,566 $ 36,361
======== ======== ======== ========
Short-term outstandings,
December 31, 1996 $ 18,679 $ 23,398 $ 18,566 $ 35,944
======== ======== ======== ========
</TABLE>
-50-
<PAGE> 51
ALLOWANCE FOR LOAN LOSSES
Management assesses the adequacy of the allowance for loan losses at least
quarterly and takes appropriate action to maintain the allowance at a level
deemed adequate to absorb potential loan losses in the portfolio. In completing
its assessment, management considers a variety of factors, including specific
assessment of certain identified problem loans, loss history of classified (as
to credit risk) loans, loss history of loans not classified (by portfolio type),
economic trends and other factors which may be relevant. The Company maintains a
loan review staff, independent of the credit issuing function, which conducts
continuous reviews of the various loan portfolios to arrive at credit risk
classifications. Loans are charged off when a loss is deemed probable. Additions
to the allowance are made by provisions charged against current operations.
Recoveries of loans previously charged off are also added to the allowance.
The allowance for loan losses totaled $9.3 million and $11.8 million at December
31, 1996 and 1995, respectively, representing 1.1% and 1.6% of outstanding loans
at December 31, 1996 and 1995, respectively. The ratio of the allowance for loan
losses to non-accrual loans was 173% at December 31, 1996 compared to 200% at
December 31, 1995. The ratio of the allowance to total non-performing loans
(non-accrual loans and loans past due 90 days or more) was 165% and 168% at
December 31, 1996 and 1995, respectively. The decrease in these ratios reflects
the charge off of foreign loans in the second quarter. While the above mentioned
ratios have declined, the Company considers the allowance for loan losses to be
adequate to absorb potential losses in the portfolio. At December 31, 1996 the
total allowance included $1.3 million allocated for foreign loans, $7.4 million
allocated for domestic exposure and $633,000 which was unallocated. At December
31, 1995, the foreign allocation was $1.4 million, domestic was $9.9 million and
$489,000 was unallocated.
The allowance allocated for foreign loans remained relatively unchanged and
reflects management's assessment of the credit quality of the current portfolio.
Based on an assessment of the information currently available, management
believes the allowance allocated for foreign loans at December 31, 1996 to be
adequate. It is possible, however, that future deterioration in the repayment
capacity of foreign borrowers could result in additional non-performing loans
and additions to the allowance for loan losses in amounts not determinable at
this time.
The allowance allocated for domestic loans decreased as a result of management's
evaluation of potential problem loans in the commercial and real estate mortgage
portfolio at December 31, 1996.
During 1996, domestic loan charge offs generally increased compared to 1995
primarily as a result of increases in consumer loan charge offs. The Company's
consumer lending activities primarily involve installment loans and lines of
credit. The increase in consumer loan charge offs is generally reflective of the
increase in the consumer loan portfolio and a nationwide increase in defaults on
consumer debt.
In the second quarter of 1996, the Company charged off $2.0 million and $1.4
million of loans to an Argentine and a Panamanian bank, respectively. Both banks
have ceased normal operations. The allowance allocated for these loans at the
time of charge off was $3.4 million. These Argentine and Panamanian bank loans
arose from trade-related transactions, as do substantially all of the Company's
foreign loans.
In the first quarter of 1995, the Company received bonds issued by the
government of Ecuador in connection with a restructuring of that country's
foreign debt. These bonds had a face value of $6.6 million and were received in
exchange for $3.9 million in loans (plus several years past due interest), $3.5
million of which was previously charged off. All of these bonds were sold during
the first and second quarters of 1995. Proceeds in excess of the remaining loan
balance were recorded as loan recoveries at the time of receipt. The Company has
not conducted non-trade foreign lending of the type which gave rise to these
loans since the 1980s and currently has no plans to do so. At December 31, 1996,
the Company had no restructured or non-performing non-trade foreign loans.
-51-
<PAGE> 52
Based on information currently available, management believes the allowance for
loan losses to be adequate to absorb losses, if any, which might occur on these
loans or are otherwise inherent in the loan portfolio. Factors involved in
determining the level of the allowance are subject to estimates and assumptions
regarding future events. At this time, management is unable to predict the
amount of future adjustments to the allowance for loan losses if its estimates
and assumptions are determined to be incorrect.
Set forth on Table 16 is a five year history of activity in the allowance for
loan losses and set forth on Table 17 is a five year history of activity of
the portion of the allowance allocated for foreign loan exposure. Table 18
presents a five year summary of management's allocation of the allowance at each
year end. Except for specific reserves which may be required from time to time
by banking regulations (the Company had no such requirement at December 31,
1996), management views the entire allowance for loan losses as being available
to absorb losses inherent in any component of the portfolio. The allocation of
the allowance shown on Table 18 is completed by management for analytical
purposes and is not necessarily indicative of future charge offs.
TABLE 16
SUMMARY OF LOAN LOSS EXPERIENCE
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan
losses at beginning
of period $ 11,789 $ 9,210 $ 18,423 $ 15,243 $ 17,239
--------- -------- -------- -------- --------
Loans charged off:
Commercial and financial (1,968) (1,227) (2,949) (2,938) (4,839)
Foreign (3,391) (743) (6,893) (1,389) --
Real estate - construction -- -- -- (796) (4,571)
Real estate - mortgage -- (17) (3,470) (439) (272)
Consumer (3,354) (2,177) (2,135) (1,673) (1,801)
--------- -------- -------- -------- --------
Total loans charged off (8,713) ( 4,164) (15,447) (7,235) (11,483)
--------- -------- -------- -------- --------
Recoveries on loans
previously charged off:
Commercial and financial 295 1,081 334 669 426
Foreign -- 1,632 1,523 28 2
Real estate - mortgage 43 27 138 6 33
Consumer 644 403 714 212 126
--------- -------- -------- -------- --------
Total recoveries 982 3,143 2,709 915 587
--------- -------- -------- -------- --------
Net loans charged off (7,731) (1,021) (12,738) (6,320) (10,896)
--------- -------- -------- -------- --------
Additions to allowance
charged to operating
expense 5,275 3,600 3,525 9,500 8,900
--------- -------- -------- -------- --------
Allowance for loan
losses at end of period $ 9,333 $ 11,789 $ 9,210 $ 18,423 $ 15,243
========= ======== ======== ======== ========
Average amount of
loans outstanding
for the year $ 757,843 $681,760 $592,023 $583,415 $570,803
========= ======== ======== ======== ========
Ratio of net loans
charged off to average
loans outstanding for
the period (1) 1.02% .15% 2.15% 1.08% 1.91%
========= ======== ======== ======== ========
</TABLE>
- ---------------------
(1) Before deduction of allowance for loan losses.
-52-
<PAGE> 53
TABLE 17
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
ALLOCATED TO FOREIGN LOANS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance, beginning
of year $ 1,400 $ 300 $ 8,000 $ 7,000 $ 6,300
Provision (credit)
for loan losses 3,291 211 (2,330) 2,361 700
Charge offs (3,391) (743) (6,893) (1,389) --
Recoveries -- 1,632 1,523 28 --
------- ------- ------- ------- -------
Balance, end of year $1,300 $ 1,400 $ 300 $ 8,000 $ 7,000
======= ======= ======= ======= =======
</TABLE>
-53-
<PAGE> 54
TABLE 18
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Amount Percentage of loans to total loans
December 31, December 31,
--------------------------------------- ----------------------------------
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Applicable to:
Domestic:
Commercial and
industrial $ 3,300 $ 4,700 $ 3,500 $ 5,700 $ 2,700 27% 28% 25% 28% 26%
Foreign 1,300 1,400 300 8,000 7,000 18% 18% 18% 15% 24%
Real estate
construction 300 400 300 400 2,600 15% 12% 11% 12% 15%
Real estate mortgage 1,000 2,100 1,500 1,600 1,500 18% 20% 22% 24% 20%
Consumer 2,800 2,700 2,600 1,900 1,060 22% 22% 24% 21% 15%
Unallocated 633 489 1,010 823 383 N/A N/A N/A N/A N/A
------- ------- ------- ------- ------- --- --- --- --- ---
$ 9,333 $11,789 $ 9,210 $18,423 $15,243 100% 100% 100% 100% 100%
======= ======= ======= ======= ======= === === === === ===
</TABLE>
-54-
<PAGE> 55
ALLOWANCE FOR CREDIT LOSSES - CAPITAL FACTORS
The allowance for credit losses at Capital Factors is maintained at a level
deemed adequate by management to absorb losses in the portfolio after evaluating
the portfolio, current economic conditions, changes in the nature and volume of
the portfolio, past loss experience and other pertinent factors. Many of these
criteria involve a significant degree of estimation and are subject to rapid
change which may be unforeseen by management. Changes in these criteria could
result in material adjustments to the allowance in the near term.
The nature and composition of the accounts receivable portfolio lends itself to
statistical analysis by management in assessing the adequacy of the allowance
and provision for credit losses. Such statistical analysis is supplemented by
specific assessment of identified problem or potential problem risks and
consideration of known trends which may affect collectibility of receivables.
The accounts receivable portfolio turns over approximately seven times each
year. Due to stringent charge off policies, and the frequency of this turnover,
actual losses are believed to bear a direct relationship to the volume of
accounts receivable purchased.
Set forth on Table 19 is a five year summary of key statistics used by
management in evaluating the adequacy of the allowance and provision for credit
losses. Set forth on Table 20 is a five year history of activity in the
allowance for credit losses.
TABLE 19
SUMMARY OF SELECTED ASSET QUALITY
STATISTICS OF CAPITAL FACTORS
(Dollar Amounts in Thousands, except as indicated)
<TABLE>
<CAPTION>
As of and for the year ended December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Accounts receivable turnover
in days 52 53 53 52 54
Provision for credit
losses $ 3,750 $ 2,235 $ 2,235 $ 2,645 $ 3,150
Charge offs $ 4,403 $ 1,625 $ 3,148 $ 3,385 $ 3,476
Allowance as a % of
accounts receivable .66% .92% .71% .97% 1.21%
Accounts receivable purchased
(for the year ended in
millions of dollars) (1) $ 2,651 $ 2,001 $ 1,537 $ 1,327 $ 1,058
Charge offs as a % of accounts
receivable purchased (1) 0.17% 0.09% 0.21% 0.26% 0.33%
Provision for credit losses as
a % of accounts receivable
purchased (1) 0.14% 0.11% 0.15% 0.20% 0.30%
</TABLE>
- ----------------------
(1) Accounts receivable purchased for 1995 and 1994 include certain receivables
which are collateral for those asset-based loans for which Capital Factors
provides factoring-type services.
-55-
<PAGE> 56
TABLE 20
ANALYSIS OF ALLOWANCE FOR CREDIT
LOSSES - CAPITAL FACTORS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beginning balance $ 2,981 $ 1,774 $ 2,157 $ 2,175 $ 2,189
Provision for credit losses 3,750 2,235 2,235 2,645 3,150
Charge offs (4,403) (1,625) (3,148) (3,385) (3,476)
Recoveries 566 597 530 722 312
Allowance acquired
in purchase of subsidiary 100 -- -- -- --
-------- -------- -------- -------- --------
Ending balance $ 2,994 $ 2,981 $ 1,774 $ 2,157 $ 2,175
======== ======== ======== ======== ========
</TABLE>
-56-
<PAGE> 57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Capital Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
------------------------------
(In Thousands of Dollars)
<S> <C> <C>
Assets:
Cash and due from banks $ 128,359 $ 138,903
Federal funds sold 52,900 75,000
------------ ------------
Cash and cash equivalents 181,259 213,903
------------ ------------
Securities held to maturity
(Market value 1996 - $31,647;
1995 - $24,173) 31,425 23,496
Securities available for sale, at market value 187,061 217,008
------------ ------------
Total securities 218,486 240,504
------------ ------------
Loans 830,330 727,916
Allowance for loan losses (9,333) (11,789)
Deferred fees and unearned income (2,964) (2,636)
------------ ------------
Loans, net 818,033 713,491
------------ ------------
Accounts receivable-factoring subsidiary, net 449,528 316,506
Premises and equipment, net 29,171 33,558
Due from customers on acceptances 29,900 32,413
Other real estate 3,632 6,837
Accrued interest and other assets 32,889 32,503
------------ ------------
Total assets $ 1,762,898 $ 1,589,715
============ ============
Liabilities, minority interest and
stockholders' equity:
Deposits:
Non-interest bearing deposits $ 315,800 $ 336,202
Savings and money market deposits 302,651 283,893
Time deposits 478,374 418,660
------------ ------------
Total deposits 1,096,825 1,038,755
------------ ------------
Funds purchased and securities
sold under agreements to repurchase 79,905 86,133
Bank acceptances outstanding 29,900 32,413
Due to clients-factoring subsidiary 191,489 128,578
Long-term debt 202,220 176,650
Other liabilities 15,207 13,461
------------ ------------
Total liabilities 1,615,546 1,475,990
------------ ------------
Minority interest in consolidated subsidiary 11,610 --
------------ ------------
Stockholders' equity:
Common stock, $1 par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,533,726 in 1996;
7,453,080 in 1995 7,534 7,453
Capital surplus 13,219 8,151
Retained earnings 115,827 98,119
Net unrealized (loss) gain on
securities available for sale, net of
related income taxes (838) 2
------------ ------------
Total stockholders' equity 135,742 113,725
------------ ------------
Total liabilities, minority interest and
stockholders' equity $ 1,762,898 $ 1,589,715
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-57-
<PAGE> 58
Capital Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION> Year Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
(In Thousands of Dollars Except
Per Share Data)
<S> <C> <C> <C>
Interest income:
Loans $ 71,020 $ 68,360 $ 52,634
Advances-factoring clients 29,455 23,803 16,747
Securities 14,897 13,327 11,980
Federal funds sold 3,809 2,924 3,046
Other 714 917 156
-------- -------- --------
Total interest income 119,895 109,331 84,563
-------- -------- --------
Interest expense:
Savings and money market deposits 7,022 7,046 6,845
Time deposits 24,225 19,026 10,656
Short-term borrowings 3,836 4,504 3,980
Long-term debt 14,509 11,176 3,633
-------- -------- --------
Total interest expense 49,592 41,752 25,114
-------- -------- --------
Net interest income 70,303 67,579 59,449
Provision for loan losses 5,275 3,600 3,525
Provision for doubtful
accounts-factoring subsidiary 3,750 2,235 2,235
-------- -------- --------
Net interest income after
provisions 61,278 61,744 53,689
-------- -------- --------
Other income:
Factoring revenues 30,396 23,114 19,977
Service charges on deposits 13,121 12,609 11,757
Fees on letters of credit 4,114 4,237 3,961
Securities gains, net 18 12 1,213
Other operating income 5,509 6,134 5,040
-------- -------- --------
Total other income 53,158 46,106 41,948
-------- -------- --------
Other expenses:
Salaries and employee benefits 41,756 37,964 36,641
Occupancy expense, net 7,868 7,424 7,548
Other operating expenses, net 29,798 34,900 30,270
-------- -------- --------
Total other expenses 79,422 80,288 74,459
-------- -------- --------
Minority interest in net income
of consolidated subsidiary 1,146 -- --
-------- -------- --------
Income before income taxes 33,868 27,562 21,178
Provision for income taxes 13,664 10,461 7,974
-------- -------- --------
Net Income $ 20,204 $ 17,101 $ 13,204
======== ======== ========
Earnings per common and common
equivalent share:
Primary $ 2.50 $ 2.25 $ 1.83
======== ======== ========
Fully diluted $ 2.50 $ 2.20 $ 1.80
======== ======== ========
Cash dividends declared
per share of common stock $ .33 $ .33 $ .33
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-58-
<PAGE> 59
Capital Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities
Common Capital Retained Treasury Available for
Stock Surplus Earnings Stock Sale
--------------------------------------------------------
(In Thousands of Dollars)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 4,687 $ 6,818 $ 72,572 $(1,440) $ 2,036
Net income -- -- 13,204 -- --
Cash dividends
declared ($.33 per share) -- -- (2,331) -- --
Proceeds from exercise of
common stock options 134 1,398 -- -- --
Net change in unrealized gain
on securities available for
sale, net of related income
taxes -- -- -- -- (5,715)
------- ------- -------- ------- --------
Balance, December 31, 1994 4,821 8,216 83,445 (1,440) (3,679)
Net income -- -- 17,101 -- --
Cash dividends declared
($.33 per share) -- -- (2,427) -- --
Effect of 3 for 2 stock
split 2,429 (2,429) -- -- --
Redemption of fractional
shares -- (2) -- -- --
Proceeds from exercise
of common stock options 203 1,694 -- -- --
Proceeds for sale of
treasury stock -- 672 -- 1,440 --
Net change in unrealized loss
on securities available for
sale, net of related income
taxes -- -- -- -- 3,681
------- ------- -------- ------- --------
Balance, December 31, 1995 7,453 8,151 98,119 -- 2
Net income -- -- 20,204 -- --
Cash dividends declared
($.33 per share) -- -- (2,496) -- --
Proceeds from exercise of
common stock options 86 595 -- -- --
Repurchase and
cancellation of common stock (5) (43) -- -- --
Net change in unrealized gain
on securities available for
sale, net of related income
taxes -- -- -- -- (840)
Gain from issuance of
subsidiary's Common Stock -- 4,516 -- -- --
------- ------- -------- ------- --------
Balance, December 31, 1996 $ 7,534 $13,219 $115,827 $ -- $ (838)
======= ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
-59-
<PAGE> 60
Capital Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,204 $ 17,101 $ 13,204
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 5,275 3,600 3,525
Provision for doubtful
accounts-factoring subsidiary 3,750 2,235 2,235
Net (gain) loss on other real estate (416) 2,046 1,848
Securities gains (19) (12) (1,213)
Depreciation and amortization 4,882 4,173 3,756
Loss (gain) on sale of premises and
equipment, net 17 (66) 123
Increase in accrued interest
and other assets (2,542) (4,573) (6,269)
Increase in other liabilities 1,739 6 1,244
Minority interest in net
income of consolidated subsidiary 1,146 -- --
---------- ---------- ---------
Net cash provided by operating
activities 34,036 24,510 18,453
---------- ---------- ---------
Cash flows from investing activities:
Proceeds from sales of securities
held to maturity 215 -- --
Proceeds from maturities of
securities held to maturity 6,832 28,127 38,355
Purchases of securities held to
maturity (15,000) (13,074) (79,834)
Proceeds from maturities of
securities available for sale 94,246 47,577 19,687
Proceeds from sales of securities
available for sale 3,846 -- 6,159
Purchases of securities available
for sale (69,483) (76,083) (33,140)
Net increase in loans (110,869) (81,388) (95,956)
Increase in accounts receivable-
factoring subsidiary (net of
due to clients) (73,949) (35,508) (25,930)
Proceeds from sales of premises
and equipment 3,236 171 48
Purchase of premises and equipment (3,704) (5,612) (12,068)
Proceeds from sales of other
real estate 5,354 7,334 4,957
Improvements to other real estate (593) (999) (451)
---------- ---------- ---------
Net cash used in
investing activities (159,869) (129,455) (178,173)
---------- ---------- ---------
</TABLE>
(Continued)
-60-
<PAGE> 61
Capital Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 58,070 $ 161,962 $ (39,055)
Net (decrease) increase in
funds purchased and securities
sold under agreements to
repurchase (6,228) (1,103) 42,670
Repayment of debt-factoring
subsidiary -- -- (15,000)
Proceeds from issuance of
long-term debt 25,900 50,000 122,434
Repayment of long-term debt (330) (330) (625)
Cash dividends (2,489) (2,400) (2,313)
Proceeds from stock
options exercised 681 1,897 1,532
Repurchase of Common Stock (48) -- --
Net proceeds from public offering of
subsidiary's Common Stock 17,633 -- --
Proceeds from sale of
treasury stock -- 2,112 --
Redemption of fractional shares -- (2) --
---------- --------- ---------
Net cash provided by
financing activities 93,189 212,136 109,643
---------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (32,644) 107,191 (50,077)
Cash and cash equivalents at
beginning of year 213,903 106,712 156,789
---------- --------- ---------
Cash and cash equivalents
at end of year $ 181,259 $ 213,903 $ 106,712
========== ========= =========
Supplemental disclosures:
Cash paid during the year for:
Interest $ 49,610 $ 40,584 $ 24,798
========== ========= =========
Income taxes $ 12,364 $ 10,821 $ 11,000
========== ========= =========
Non-cash activities:
Securities transferred
from held to maturity to available
for sale $ 50 $ 52,841 $ --
========== ========= =========
(Decrease) increase in market value
of securities available for sale,
net of applicable (benefit) taxes
in 1996 - ($497), 1995 - $2,175,
1994 - ($3,377) $ (840) $ 3,681 $ (5,715)
========== ========= =========
Loans transferred to other
asset categories $ 1,140 $ 1,104 $ 3,040
========== ========= =========
Loans recorded in connection
with sales of other assets $ -- $ 596 $ 197
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-61-
<PAGE> 62
Capital Bancorp and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies:
Capital Bancorp (the "Parent Company") is a bank holding company which conducts
operations principally through Capital Bank (the "Bank"), a wholly-owned
subsidiary, and Capital Factors Holding, Inc., a majority-owned subsidiary of
the Bank. The Bank operates a commercial banking franchise through 28 offices
located in the South Florida area. Capital Factors Holding, Inc. and its
subsidiaries ("Capital Factors") provides accounts receivable factoring and
asset-based lending services through offices located in Ft. Lauderdale, Florida,
New York, New York, Los Angeles, California and Charlotte, North Carolina.
During the third quarter of 1996, Capital Factors Holding, Inc. completed an
initial public offering of 2,300,000 shares of its Common Stock at an offering
price of $8.50 per share. Prior to this offering, all of the Common Stock was
owned by the Bank. As a result of the offering, the Bank's ownership of Capital
Factors Holding, Inc. was reduced to approximately 81% of the outstanding Common
Stock.
The consolidated financial statements of Capital Bancorp and subsidiaries (the
"Company") are prepared in conformity with generally accepted accounting
principles and prevailing practices within the banking industry. The following
are the significant accounting and reporting policies used in preparing the
financial statements:
Basis of Presentation and Principles of Consolidation:
The consolidated financial statements include the accounts of the Parent
Company, the Bank and its subsidiaries, Capital Factors and its subsidiaries,
and Capital Factors Financing Trust, a special purpose trust. All significant
intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment Securities:
The Company's securities holdings are segregated into three separate portfolios;
held to maturity, available for sale and trading. At December 31, 1996 and 1995,
the Company held no trading securities.
Securities held to maturity include securities purchased with the ability and
positive intent to hold to maturity. These securities are stated at historical
cost adjusted for amortization of premiums and accretion of discounts. Any
investment security for which there has been a value impairment deemed by
management to be other than temporary is written down to its estimated market
value with a charge to current operations. Gains and losses on sales of
securities held to maturity are recognized using the specific identification
method.
Securities which are neither classified as held to maturity nor trading
securities are included in securities available for sale and are reported at
fair value. Any unrealized gain or loss, net of applicable income taxes, is
reported as a separate addition to or reduction from stockholders' equity. Gains
and losses arising from the sale of securities available for sale are recognized
based on the specific identification method and included in results of
operations.
Loans:
Interest on loans is generally recognized based upon the principal amount
outstanding. Loans are placed on non-accrual status and are considered impaired
when management deems that collectibility of interest is doubtful. Generally,
loans that are more than 90 days past due are placed on non-accrual status
unless they are well secured and in the process of collection. Interest
subsequently collected on loans which have been placed on non-accrual status is
generally applied against principal. Loans are charged off when a loss is deemed
probable.
-62-
<PAGE> 63
Allowance for Loan Losses:
The allowance for loan losses is maintained at a level deemed adequate by
management to absorb potential loan losses in the portfolio after evaluating the
loan portfolio, current economic conditions, changes in the nature and the
volume of the portfolio, past loan loss experience and other pertinent factors.
Many of these factors involve a significant degree of estimation and are subject
to rapid change which may be unforeseen by management. Changes in these factors
could result in material adjustments to the allowance. The allowance is
increased by provisions charged to current operations and recoveries of amounts
previously charged off, and is reduced by current charge offs.
The Company measures impairment of certain loans by comparing the recorded
amount of the loan to the present value of expected future cash flows discounted
at the loan's effective interest rate, or at the loan's observable market price
or the fair value of the collateral if the loan is collateral dependent. If the
recorded investment in the impaired loan exceeds the fair value of the loan, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses. In determining when a loan is impaired, management
primarily considers current events and conditions, including the borrower's or
guarantor's (if applicable) operating performance and capacity to repay the loan
and realizable collateral values. The determination of impairment is done on a
loan by loan basis, except for consumer loans, and involves significant
judgement and estimation, and final outcomes may differ from such estimates.
Small balance, homogenous loans, comprised primarily of the Company's consumer
loans, are collectively evaluated for impairment.
Accounts Receivable-Factoring Subsidiary:
Interest income on advances to factoring clients is generally recorded as earned
in accordance with the related agreements with clients. Advances are placed on
non-accrual status and considered impaired when the advance balance and interest
receivable exceed the estimated value of the underlying collateral or
receivables. Factoring fees are recognized generally at the time of purchase of
accounts receivable due to the nature of the relationship with the factoring
client and the relatively short term nature of accounts receivable purchased.
The allowance for doubtful accounts is maintained at a level deemed adequate by
management to absorb losses on receivables and advances after evaluating the
portfolio, current economic conditions, changes in the nature and volume of the
portfolio, past loss experience and other pertinent factors. Many of these
factors involve a significant degree of estimation and are subject to rapid
change which may be unforeseen by management. Changes in these factors could
result in material changes to the allowance in the near term. Accounts
receivable which are past due are charged off unless, in the opinion of
management, collection is likely from the customer, client or collateral
realization, if any.
Premises and Equipment:
Premises and equipment are carried at cost less accumulated depreciation and
amortization computed generally on a straight-line basis over the estimated
useful lives of the assets or lease terms.
Other Real Estate:
Other real estate owned is carried at the lower of cost or fair value less
estimated costs to sell the asset. Any writedowns deemed necessary to adjust the
asset to fair value less estimated costs to sell the asset are charged to the
allowance for loan losses at the date of acquisition. Expenses incurred in
connection with the maintenance and operation of such assets, writedowns
subsequent to acquisition and gains and losses upon sale are included in current
operations as a component of other operating expenses. Costs incurred for major
improvements or costs which increase the value of these assets are capitalized.
Determination of fair value of other real estate involves a significant degree
of estimation and is subject to changes that may be unforeseen by management.
-63-
<PAGE> 64
Retirement Plans and Other Postemployment Benefits:
Costs of defined benefit retirement plans are actuarially determined by the
projected unit credit cost method. The plans provide for no past service
credits.
The Company has no material postemployment obligations.
Income Taxes:
There are two components of income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for the
applicable period.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. Deferred tax expense or
benefit is then recognized for the change in deferred tax liabilities or assets
between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax credits
will be realized. A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not occur.
The Company files consolidated income tax returns. The subsidiaries provide for
income taxes on a separate return basis and remit to the Parent Company amounts
determined to be currently payable.
Per Share Data:
Primary per share amounts are computed based upon the average number of common
and common equivalent shares outstanding, assuming proceeds from the assumed
exercise of options were used to purchase common shares outstanding at the
average market value during each period, unless such exercise is anti-dilutive.
Fully diluted earnings per share assumes that the proceeds were used to purchase
common shares outstanding at the higher of market value per share as of the end
of each period or the average market value during each period, unless such
exercise is anti-dilutive. Prior to the listing of the Company's common stock on
the Nasdaq National Market in July 1995, market value was estimated based on
factors including the Company's financial condition and operating results, and
price/earnings and price to book value multiples of selected publicly traded
banking companies. Per share and average share information for prior periods
have been retroactively restated for the 3-for-2 stock split in the form of a
50% stock dividend which was effective June 22, 1995.
Statements of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, interest bearing deposits with banks, Federal
funds sold and other short-term investments with maturities of 90 days or less.
Reclassification:
Certain amounts in prior periods have been reclassified to conform with 1996
presentations.
-64-
<PAGE> 65
(2) Restrictions on Cash and Due from Bank Accounts:
The Bank is required to maintain average balances in the form of vault cash or
deposits with the Federal Reserve Bank of Atlanta pursuant to Federal Reserve
Bank regulations. The average amount of these reserves for the years ended
December 31, 1996 and December 31, 1995 was $37.3 million and $37.7 million,
respectively.
CF Funding Corp., a wholly-owned subsidiary of Capital Factors, is required to
maintain cash collateral accounts at Bankers Trust Company, the trustee,
pursuant to the terms of certain debt instruments. Such cash collateral amounted
to $6.6 million and $16.2 million at December 31, 1996 and December 31, 1995,
respectively. See Note 10.
(3) Securities:
The following tables present the amortized cost, gross unrealized gains, gross
unrealized losses and estimated market value for each category of securities
(000s omitted) in the held to maturity and available for sale portfolios:
Securities Held to Maturity:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and
government
agency securities $ 25,010 $ 48 $ 185 $ 24,873
Securities of states
and political
subdivisions 2,206 359 -- 2,565
Obligations of foreign
government 4,025 -- -- 4,025
Other debt securities 184 -- -- 184
-------- ------- ------- --------
Total securities
- held to
maturity $ 31,425 $ 407 $ 185 $ 31,647
======== ======= ======= ========
<CAPTION>
December 31, 1995
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and
government
agency securities $ 16,016 $ 223 $ -- $ 16,239
Securities of states
and political
subdivisions 3,090 454 -- 3,544
Obligations of foreign
government 4,025 -- -- 4,025
Other debt securities 315 -- -- 315
-------- ------- ------- --------
Total debt securities 23,446 677 -- 24,123
Equity securities 50 -- -- 50
-------- ------- ------- --------
Total securities
- held to
maturity $ 23,496 $ 677 $ -- $ 24,173
======== ======= ======= ========
</TABLE>
-65-
<PAGE> 66
Securities Available for Sale:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and
government
agency securities $183,226 $ 1,009 $ 817 $ 183,418
Obligations of U.S.
corporations -- -- -- --
Obligations of
foreign
governments 5,118 -- 1,525 3,593
-------- -------- -------- ---------
Total debt securities 188,344 1,009 2,342 187,011
Equity securities 50 -- -- 50
-------- -------- -------- ---------
Total securities -
available
for sale $188,394 $ 1,009 $ 2,342 $ 187,061
======== ======== ======== =========
<CAPTION>
December 31, 1995
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and
government
agency securities $210,887 $ 2,095 $ 128 $ 212,854
Obligations of U.S.
corporations 1,000 17 -- 1,017
Obligations of
foreign
governments 5,118 17 1,998 3,137
-------- -------- -------- ---------
Total securities -
available
for sale $217,005 $ 2,129 $ 2,126 $ 217,008
======== ======== ======== =========
</TABLE>
-66-
<PAGE> 67
The following table presents the amortized cost and fair value for debt
securities in each maturity category (000s omitted) in the held to maturity and
available for sale portfolios. For purposes of this disclosure, debt securities
which do not have a single maturity date have been included according to their
final maturity date.
<TABLE>
<CAPTION>
December 31, 1996
----------------------------
Amortized Cost Fair Value
-------------- ------------
<S> <C> <C>
Debt securities held to maturity:
One year or less $ 100 $ 102
One to five years 18,981 18,944
Five to ten years 11,695 11,878
Over ten years 649 723
-------- --------
Total debt securities -
held to maturity $ 31,425 $ 31,647
======== ========
<CAPTION>
December 31, 1996
----------------------------
Amortized Cost Fair Value
-------------- ------------
<S> <C> <C>
Debt securities available for sale:
One year or less $ 23,067 $ 23,114
One to five years 101,019 100,903
Five to ten years 38,105 37,988
More than ten years 26,153 25,006
-------- --------
Total debt securities -
available for sale $188,344 $187,011
======== ========
</TABLE>
Sales of debt securities resulted in proceeds, gross realized gains and gross
realized losses as follows (000s omitted):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales
of debt securities $ 215 $ -- $6,159
====== ====== ======
Gross realized gains $ 15 $ -- $1,213
====== ====== ======
</TABLE>
During 1996 the Company sold one municipal bond that was classified as held to
maturity and realized a gain of $15,000. The Company sold this bond,
representing the only security issued by this municipality held by the Company,
due to recent and significant deterioration in the municipality's financial
condition.
-67-
<PAGE> 68
The Company did not own investment securities of any issuer, except U.S.
Treasury and government agency obligations, for which the aggregate book value
exceeded 10% of stockholders' equity at December 31, 1996 or 1995. Securities
pledged to secure public funds on deposit or sold under agreements to repurchase
amounted to approximately $116.7 million and $134.7 million at December 31, 1996
and 1995, respectively.
Interest income on securities include $206,000, $232,000 and $293,000 of
interest income on tax-exempt securities for the years ended December 31, 1996,
1995 and 1994, respectively.
4) Loans:
Major classifications of loans are as follows (000s omitted):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Commercial and industrial $222,809 $207,357
Foreign 145,483 127,623
Real estate:
Construction 122,656 84,402
Mortgage 152,469 147,082
Consumer 183,396 158,698
Other 3,517 2,754
-------- --------
Total $830,330 $727,916
======== ========
</TABLE>
At December 31, 1996 and 1995 there were approximately $5.4 million and $5.9
million, respectively, in loans categorized as non-accrual, which included
certain loans considered impaired. Interest income that would have been recorded
under the original terms of these loans had they not been on non-accrual status
was $404,000 and $372,000 for 1996 and 1995, respectively. Interest income that
was recorded on these loans during 1996 and 1995 amounted to $293,000 and
$248,000, respectively.
At December 31, 1996 and 1995, the recorded investment in certain loans that was
considered impaired under SFAS No. 114 was $4.9 million and $5.9 million,
respectively. Measurement for impairment of $4.3 million and $3.5 million of
these loans was based on the estimated value of collateral at December 31, 1996
and 1995, respectively, and the remainder was measured based on the present
value of projected cash flows. At December 31, 1996 and 1995, these loans
required a SFAS No. 114 reserve for possible credit losses of $1.3 million and
$2.2 million, respectively, which is included within the overall allowance for
loan losses. The average recorded investment in impaired loans during the years
ended December 31, 1996 and 1995, was $5.6 million and $5.7 million,
respectively. For the years ended December 31, 1996 and 1995, the Company
recognized interest income on these loans of $54,000 and $100,000, respectively.
Included in real estate construction loans at December 31, 1996 and 1995 are
$11.9 million and $17.4 million, respectively, of tax-exempt loans, which are
also considered industrial development bonds and are subject to the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Based upon the guidelines of SFAS No. 115 and management's
analysis, these loans are classified as held to maturity and reported at
historical cost. Included in interest income on loans are amounts exempt from
Federal income taxes totaling, $1,524,000, $2,062,000 and $2,747,000 for years
ended December 31, 1996, 1995 and 1994, respectively.
The majority of the Bank's domestic lending activities are conducted with
customers located in the South Florida region. Commercial loans are primarily
extended to small and mid-sized corporate borrowers in service and manufacturing
related industries. Mortgage loans are primarily non-residential and are
generally made for terms not exceeding five to seven years. In addition to the
real estate construction and mortgage loans above, the Bank had outstanding
consumer loans secured by real estate amounting to $9.1 million and $9.3 million
at December 31, 1996 and 1995, respectively.
-68-
<PAGE> 69
(5) Allowance for Loan Losses:
Changes in the allowance for loan losses are as follows (000s omitted):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Balance, beginning of year $11,789 $ 9,210 $18,423
Provision for loan losses 5,275 3,600 3,525
Loans charged off (8,713) (4,164) (15,447)
Recoveries 982 3,143 2,709
------- ------- -------
Balance, end of year $ 9,333 $11,789 $ 9,210
======= ======= =======
</TABLE>
(6) Accounts Receivable-Factoring Subsidiary:
Accounts receivable-factoring subsidiary are summarized as follows (000s
omitted):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Accounts receivable $454,958 $322,891
Reserve for discounts (2,436) (3,404)
Allowance for doubtful accounts (2,994) (2,981)
-------- --------
Accounts receivable, net $449,528 $316,506
======== ========
</TABLE>
Capital Factors purchases receivables primarily from clients which include
manufacturers, importers, wholesalers and distributors in apparel and
textile-related industries and, to a lesser extent, clients in consumer
goods-related industries such as plastics, video game cartridges, paper and
services. Receivables purchased are due from clients' customers geographically
located throughout the United States, principally retailers, manufacturers and
distributors.
Included in accounts receivable at December 31, 1996 and 1995, respectively,
were $157.2 million and $81.2 million purchased with recourse to the clients.
Advances made to clients prior to the contractual payment date for accounts
receivable purchased, net of client interest bearing credit balances, amounted
to $263.5 million and $194.2 million at December 31, 1996 and 1995,
respectively. Advances categorized as non-accrual, all of which were considered
impaired, amounted to $660,000 at December 31, 1996 and $2.2 million at December
31, 1995.
Changes in the allowance for doubtful accounts relating to accounts
receivable-factoring subsidiary are as follows (000s omitted):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,981 $ 1,774 $ 2,157
Provision for doubtful accounts 3,750 2,235 2,235
Accounts receivable charged off (4,403) (1,625) (3,148)
Recoveries 566 597 530
Allowance acquired in purchase
of subsidiary 100 -- --
------- ------- -------
Balance, end of year $ 2,994 $ 2,981 $ 1,774
======= ======= =======
</TABLE>
-69-
<PAGE> 70
(7) Premises and Equipment:
Premises and equipment are as follows (000s omitted):
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Land and buildings $19,156 $24,675
Furniture and equipment 26,091 24,123
Leasehold improvements 12,084 11,982
------- -------
57,331 60,780
Accumulated depreciation
and amortization (28,160) (27,222)
------- -------
Premises and equipment, net $29,171 $33,558
======= =======
</TABLE>
(8) Deposits:
Time certificates of deposit in denominations of $100,000 or more totaled
approximately $249 million or 23% of total deposits at December 31, 1996
compared to $168 million or 14% of total deposits at December 31, 1995.
(9) Income Taxes:
The components of income tax expense are as follows (000s omitted):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 10,922 $10,929 $ 5,420
State and foreign 1,293 1,525 1,759
------- ------- -------
Total current 12,215 12,454 7,179
------- ------- -------
Deferred expense (credit):
Federal 1,298 (1,751) 697
State 151 (242) 98
------- ------- -------
Total deferred 1,449 (1,993) 795
------- ------- -------
Total income tax expense $13,664 $10,461 $ 7,974
======= ======= =======
</TABLE>
-70-
<PAGE> 71
The tax effects of temporary differences that result in deferred tax assets and
deferred tax liabilities, which are included in accrued interest and other
assets in the Company's consolidated statement of condition, are as follows
(000s omitted):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Excess of book allowance
for loan losses over tax $ 4,716 $ 5,697
Depreciation 1,059 991
Other real estate loss provisions 1,023 1,710
Loan fee income 1,000 866
Unrealized loss on sale of securities
available for sale 495 --
Pension costs 426 233
Capital losses 339 339
Other 535 823
------- -------
Gross deferred tax assets 9,593 10,659
------- -------
Deferred tax liabilities:
Gain from issuance of
subsidiary's Common Stock 2,660 --
Accretion of municipal securities 112 70
Other 197 199
------- ------
Gross deferred tax liabilities 2,969 269
------- -------
Valuation allowance 1,132 1,286
------- -------
Net deferred tax assets $ 5,492 $ 9,104
======= =======
</TABLE>
The following is a reconciliation of the expected tax rate (statutory) to the
actual tax rate (000s omitted):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $11,854 35.0% $9,647 35.0% $7,412 35.0%
State taxes 835 2.5 868 3.2 1,206 5.7
Tax-exempt interest (605) (1.8) (761) (2.8) (1,021) (4.8)
Minority interest in net
income of consolidated
subsidiary 401 1.2 -- -- -- --
Other 1,179 3.4 707 2.6 377 1.8
--------------------------------------------------
Total $13,664 40.3% $10,461 38.0% $7,974 37.7%
==================================================
</TABLE>
Income tax returns filed by the Company or its subsidiaries are subject to
review by federal or state tax authorities, as applicable. Currently, the
Internal Revenue service is reviewing the consolidated federal income tax
returns for the years 1989 through 1992. Management does not believe the results
of these reviews will have a material impact on the consolidated financial
statements.
-71-
<PAGE> 72
(10) Long-Term Debt:
Components of long-term debt are as follows (000s omitted):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Variable Rate Asset Backed
Certificates Series 1994-1 $100,000 $100,000
Variable Rate Asset Backed
Certificates Series 1994-2 25,000 25,000
Variable Rate Asset Backed
Certificate Series 1995 50,000 50,000
Other long-term debt 27,220 1,650
-------- --------
$202,220 $176,650
======== ========
</TABLE>
In June, 1994, December, 1994 and July, 1995, Capital Factors Financing Trust
issued $100,000,000, $25,000,000 and $50,000,000, respectively, of Variable Rate
Asset Backed Certificates ("senior certificates") with maturity dates of
December 1999, June 2000 and January 2001. The senior certificates bear an
interest rate of LIBOR plus 1.25% before transaction costs (approximately 6.86%
at December 31, 1996, excluding transaction costs of .40%). Interest is payable
monthly. The senior certificates are secured by interest earning advances which
totaled $233.5 million at December 31, 1996. Capital Factors, Inc. services and
administers these advances and related receivables under an agreement entered
into by and among Bankers Trust Company as Trustee, CF Funding Corp. and Capital
Factors, Inc. The senior certificates may not be redeemed prior to maturity, and
are subject to acceleration if certain collateral requirements are not
maintained. Deferred issuance costs of $2.6 million are being amortized over the
terms of the related series.
During the second quarter of 1996, Capital Factors established a $40 million
revolving credit facility with an unaffiliated lender. Borrowings under this
facility bear interest at LIBOR plus 2.15% (7.76% at December 31, 1996) and
mature in March 1999. At December 31, 1996, $15.9 million was outstanding under
this line. Under the revolving credit facility, Capital Factors has certain
financial covenants and ratios, including those relating to its debt to net
worth, profitability and net cash flows. Also during the second quarter, Capital
Factors privately placed a $10.0 million subordinated note with an unaffiliated
lender. The note bears interest at a fixed rate of 7.95% and matures in July
2001. The revolving credit facility and the subordinated note are included in
other long-term debt in the above table.
Other long-term debt also includes an unsecured term loan amounting to
$1,320,000 and $1,650,000 at December 31, 1996 and 1995, payable to an affiliate
of a principal shareholder. Interest is charged at the prime rate, payable
monthly. Principal payments in the amount of $330,000 are due annually until May
31, 2000.
(11) Stock Option Plan:
In 1992, the Company adopted a stock option plan (the "1992 Plan") to replace
the previous plan which was adopted in 1982. No additional shares may be granted
under the 1982 plan. Under the 1992 Plan, options for the purchase of a maximum
of 2,203,503 shares, as adjusted for stock splits, may be granted to certain key
employees and directors at not less than the fair market value of such shares on
the date of grant. The timing of exercise and length of the option term is
subject to approval by the option committee. Generally, options granted are
immediately exercisable and terminate five years from date of grant. The plan
also provides for the granting of stock appreciation rights, none of which are
outstanding.
-72-
<PAGE> 73
Stock option activity (adjusted for stock split) in the 1992 Plan and the
predecessor plan is summarized as follows:
<TABLE>
<CAPTION>
Stock Options
- -----------------------------------------------------------------------------------------
Available Option Price Weighted
For Grant Outstanding Per Share Average Price
--------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 1,456,203 1,244,207 $ 6.17 - $13.20
Granted (486,225) 486,225 14.67 - 16.13
Exercised -- (201,285) 6.17 - 12.00
Canceled -- (77,378) 6.17 - 12.00
- -----------------------------------------------------
Balance, December 31, 1994 969,978 1,451,769 $ 6.17 - $16.13
Granted (7,500) 7,500 14.67
Exercised -- (220,976) 6.17 - 14.67
Canceled 118,204 (134,593) 6.17 - 16.13
- -----------------------------------------------------
Balance, December 31, 1995 1,080,682 1,103,700 $ 6.40 - $16.13 $12.21
Granted (206,325) 206,325 31.00 - 34.10 31.10
Exercised -- (85,896) 6.40 - 14.67 7.93
Canceled 21,745 (28,728) 6.40 - 31.00 12.87
- -----------------------------------------------------
Balance, December 31, 1996 896,102 1,195,401 $ 6.40 - $34.10 $15.76
=====================================================
</TABLE>
The weighted-average exercise price and the weighted-average remaining
contractual life for options outstanding under the 1992 Plan and the predecessor
plan at December 31, 1996 for the following range of exercise prices are as
follows:
<TABLE>
<CAPTION>
Weighted-Average
Range Number of ---------------------------------
of Options Exercise Remaining
Exercise Price Outstanding Price Contractual Life
-------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C>
$ 6.40 - $ 6.40 22,500 $ 6.40 .1 years
9.67 - 10.63 190,639 9.68 .9 years
12.00 - 16.16 779,187 13.52 2.4 years
31.00 - 34.10 203,075 31.10 4.1 years
--------
$ 6.40 - $34.10 1,195,401 $15.76 2.4 years
=========
</TABLE>
In 1996, Capital Factors adopted a stock option plan concurrent with its initial
public offering (the "Capital Factors Plan"). Under the Capital Factors Plan,
options for the purchase of a maximum of 800,000 shares may be granted to
employees and directors. Options granted in 1996 vest 20% a year over five years
expiring at the end of the tenth year, and were granted at the fair market value
on the date of grant. At December 31, 1996, none were exercisable. The Capital
Factors Plan also provides for the granting of stock appreciation rights,
372,500 of which are outstanding in tandem with options outstanding.
-73-
<PAGE> 74
Stock option activity in the Capital Factors Plan is summarized as follows:
<TABLE>
<CAPTION>
Stock Options
------------------------------------------
Available Weighted
For Grant Outstanding Average Price
--------- ----------- -------------
<S> <C> <C> <C>
Plan establishment 800,000 --
Granted (572,500) 572,500 $8.50
- ------------------------------------------------------
Balance, December 31, 1996 227,500 572,500 $8.50
======================================================
</TABLE>
The weighted-average remaining contractual life for options outstanding at
December 31, 1996 was 9.5 years.
The Company and Capital Factors will continue to measure compensation cost for
stock based compensation as prescribed by the Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." However, SFAS No.
123, "Accounting for Stock Based Compensation" requires pro forma disclosures of
net income and earnings per share as if the fair value method of accounting had
been applied. The fair value of the options granted in 1996, under the Company's
1992 Plan, is estimated on the date of grant using the binomial option-pricing
model with the following weighted-average assumptions: dividend yield of 1.08%,
expected volatility of 30.58%, risk-free interest rate of 5.49% and expected
option life of 2.9 years. The weighted-average fair value of options granted in
1996 for the Company was $7.76 per share. The fair value of the options granted
in 1996, under the Capital Factors Plan, is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions: dividend yield of 0%, expected volatility of 30.00%, risk-free
interest rate of 6.66% and expected option life of 5.0 years. The
weighted-average fair value of options granted in 1996 for Capital Factors was
$3.34 per share. Under the fair value method, compensation cost in 1996 would
have been $1.6 million for options granted under the Company's 1992 Plan and
$178,000 for options granted under the Capital Factors Plan. Compensation cost
recorded in the 1996 financial statements under APB Opinion No. 25 amounted to
$149,000 all of which related to the Capital Factors Plan. The after tax effect
would have been to reduce the Company's net income in 1996 by $1.3 million. The
following table presents the pro forma calculation of earnings per share for the
year ended December 31, 1996:
<TABLE>
<S> <C>
Total common and common equivalent shares 8,096,279
===========
Pro forma net income $18,886,000
===========
Pro forma earnings per share $ 2.33
===========
</TABLE>
-74-
<PAGE> 75
(12) Retirement Plans:
The Company sponsors a non-contributory defined benefit pension plan (the
"Plan") covering all employees meeting certain eligibility requirements. The
benefits are based on years of service and the employee's compensation for the
five consecutive years during the last ten years of service that produce the
highest average salary. The Plan provides for accumulation of full benefits
equal to 1.2% of eligible compensation for each year of service up to 25 years.
Full vesting will occur after completion of seven years of service. The
Company's funding policy is to contribute annually the maximum amount that can
be deducted for Federal income tax purposes.
The following items are components of the net periodic pension cost (000s
omitted):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 975 $ 700 $ 705
Interest cost-projected benefit
obligation 689 526 370
Actual return on plan assets (858) (1,403) (103)
Net amortization and deferral 407 1,384 (300)
-------- ------- ------
Net periodic pension cost $ 1,213 $ 1,207 $ 672
======== ======= ======
</TABLE>
The funded status of the plan is shown in the table below (000s omitted):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $ 7,746 $ 6,454
Nonvested 490 643
----------- ----------
Total $ 8,236 $ 7,097
=========== ==========
Plan assets at fair value $ 8,614 $ 7,176
Projected benefit obligation for
services rendered (10,865) (8,635)
----------- ----------
Plan assets less than projected
benefit obligation (2,251) (1,459)
Unrecognized prior service cost 284 407
Unrecognized net loss 745 337
----------- ----------
Accrued pension cost $ (1,222) $ (715)
=========== ==========
</TABLE>
At December 31, 1996 and 1995, the Plan's assets consisted primarily of
corporate obligations, equity securities, mutual funds, U.S. Government
securities and other cash equivalents.
The assumed weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% and 7.00% in 1996
and 1995, respectively. The assumed expected long-term rate of return on assets
was 8.50% in 1996 and 1995. The assumed rate of salary progression was 5.50% in
1996 and 1995.
The Company sponsored a supplemental retirement plan ("supplemental plan") for
key executive officers from 1985 until 1994. The supplemental plan covered three
participants, including the former chairman and chief executive officer and two
individuals who were also executive officers and directors. In 1994, the
remaining two
-75-
<PAGE> 76
participants, including the former chairman and chief executive officer,
resigned from the Company and received lump sum payouts of approximately
$2,066,000 and $259,000, respectively. The net periodic cost associated with the
supplemental plan amounted to $1.4 million in 1994 and is included in salaries
and employee benefits in the accompanying statements of income.
(13) Related Party Transactions:
The Bank has granted loans to executive officers and directors of the Parent
Company, the Bank and their affiliated entities. Related party loans are made on
substantially the same terms as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility. The aggregate dollar amount of these loans was $10,827,000
and $8,951,000 at December 31, 1996 and 1995, respectively. During 1996,
$22,936,000 of new loans were made and repayments totaled $21,060,000.
Included in long-term debt is a term loan with an aggregate outstanding
principal balance of $1,320,000 and $1,650,000 at December 31, 1996 and 1995,
respectively, payable to a lender affiliated with a stockholder of the Company.
The Bank leases real estate for several of its branches from the Chairman of the
Board, members of his immediate family or lessors affiliated with these
individuals. Rentals paid on these leases aggregated approximately $206,000,
$199,000 and $406,000 for 1996, 1995 and 1994, respectively.
During 1994, the Bank purchased the building housing its operations center, a
branch and other Bank offices from the former chairman and chief executive
officer of the Company and a business associate. The purchase price of $4.5
million approximated the appraised value of the building.
(14) Lines of Business:
The Company conducts commercial banking and factoring activities through its
subsidiaries. See Table 9 in Item 7 hereof for certain information regarding
these business segments. Also, set forth below is certain information regarding
the Company's domestic and foreign activities.
The Company provides banking services in various parts of the world through the
International Division of the Bank. The Company considers assets and revenues as
associated with foreign banking operations on the basis of the country of
domicile of the customer.
The Company treats foreign activities as separate lending and deposit placement
activities to which most revenues, costs and expenses can be directly
attributed. Rates used to determine charges or credits for funds used or
generated by domestic and foreign operations are based on actual external costs
during the period for selected interest bearing sources of funds. Indirect
expenses are allocated through the use of internal estimates, certain direct
costs and other pertinent factors.
A summary of the Company's domestic and foreign assets and liabilities at
December 31, 1996 and 1995, and selected income data for the last three years
follows (000s omitted):
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
------------------------
<S> <C> <C>
Domestic assets $1,580,237 $1,424,696
Foreign assets 182,661 165,019
---------- ----------
Total $1,762,898 $1,589,715
========== ==========
Domestic liabilities $1,392,860 $1,276,114
Foreign liabilities 222,686 199,876
---------- ----------
Total $1,615,546 $1,475,990
========== ==========
</TABLE>
-76-
<PAGE> 77
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Total foreign operating income $14,032 $14,930 $12,107
======= ======= =======
Foreign income before income taxes $ 1,263 $ 5,723 $ 5,782
======= ======= =======
Net foreign income $ 808 $ 3,663 $ 3,700
======= ======= =======
</TABLE>
The Company's foreign activities primarily involve customers throughout Central
and South America but do not include any individual country or geographic area
that is significant in relation to consolidated activities.
(15) Regulatory Matters:
The Company and the Bank are subject to various regulatory capital requirements
administered by banking regulators. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The regulatory capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
The Company's and the Bank's actual capital amounts and ratios are presented in
the table below (dollars in thousands). Quantitative measures established by
regulation to ensure capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios of total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes that the Company
and the Bank met all capital adequacy requirements to which they were subject as
of December 31, 1996.
As of December 31, 1996, the Bank met the definition of "well capitalized" under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
Company $158,772 11.75% $108,057 8.00% N/A
Bank $152,626 11.28% $108,250 8.00% $135,312 10.00%
Tier I Capital
(to Risk Weighted Assets):
Company $146,445 10.84% $ 54,029 4.00% N/A
Bank $140,299 10.37% $ 54,125 4.00% $ 81,187 6.00%
Tier I Capital
(to Average Assets):
Company $146,445 8.38% $ 69,929 4.00%* N/A
Bank $140,299 8.03% $ 69,883 4.00%* $ 87,355 5.00%
</TABLE>
-77-
<PAGE> 78
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets):
Company $126,961 11.24% $ 90,385 8.00% N/A
Bank $122,575 10.83% $ 90,518 8.00% $112,982 10.00%
Tier I Capital
(to Risk Weighted Assets):
Company $112,831 9.99% $ 45,193 4.00% N/A
Bank $108,424 9.58% $ 45,259 4.00% $ 67,889 6.00%
Tier I Capital
(to Average Assets):
Company $112,831 7.25% $ 62,229 4.00%* N/A
Bank $108,424 6.97% $ 62,195 4.00%* $ 77,744 5.00%
</TABLE>
- -------------
* The minimum required ratio is 3%, however, regulators have publicly stated
their expectations that most banks maintain 1-2% in excess of the minimum
requirements.
Certain restrictions exist regarding the ability of the Bank to transfer funds
to the Parent Company in the form of cash dividends. Restrictions on the payment
of dividends are established by Florida statutes. At periodic intervals, State
or Federal regulatory agencies routinely examine the Parent Company and the Bank
as part of their legally prescribed oversight of the banking industry and may
establish dividend restrictions at levels more stringent than statutory
guidelines. At December 31, 1996, approximately $35.5 million of the Bank's
retained earnings (included in consolidated retained earnings) were available
for payment of dividends to the Parent Company without prior regulatory
approval.
Restrictions also exist regarding the ability of the Bank to transfer funds to
the Parent Company in the form of loans or advances. At December 31, 1996 the
maximum amount available for loans from the Bank to the Parent Company
approximated 10% of consolidated stockholders' equity. The Bank did not have any
loans outstanding to the Parent Company as of December 31, 1996.
Fana Holtz, the Vice-Chairman of the Board, Daniel Holtz, Chairman of the Board,
President and Chief Executive Officer of the Parent Company and the Bank, and
Javier Holtz, Senior Vice President of the Parent Company and a director of and
executive officer of the Bank, have advised the Company that they had
discussions with the Florida Department of Banking and Finance ("FDBF") as to
whether one or more of them was required under Florida law to file an
application to acquire and/or maintain a controlling interest in the Bank
through their ownership and control of the Parent Company. Fana Holtz, Daniel
Holtz and Javier Holtz have advised the Parent Company that, as a result of
those discussions, they, both individually and as a group, have voluntarily
filed an application to acquire and/or maintain a controlling interest in the
Parent Company, although they do not believe such an application is legally
required. Daniel Holtz, Fana Holtz and Javier Holtz also have had discussions
with the Federal Reserve Bank of Atlanta ("FRB") as to whether a change of
control notice is required under federal law. As of February 14, 1997, Daniel
Holtz, Fana Holtz and Javier Holtz, owned and/or had the power to vote,
approximately 6.4%, 36.8% and 3.8% (47.0% in the aggregate), respectively, of
the Parent Company's Common Stock (including shares of Common Stock subject to
options exercisable by such individuals within 60 days).
A formal administrative hearing with the FDBF in connection with the disposition
of the Florida application commenced in August 1996 and ended in November 1996
but, to the Company's knowledge, no decision has been reached on the
application. It cannot presently be determined what effect, if any, the
discussions with the FRB and the FDBF's action on the application will have on
the Company, although if control applications ultimately were determined to be
required and such applications were denied, regulatory authorities could take
various actions, including requiring that one or more members of the Holtz
family divest sufficient shares of the Parent Company so as not to have legal
control of the Parent Company as defined by regulatory authorities.
(16) Lease Commitments:
The Company leases certain land, premises and other equipment under
non-cancelable operating leases that expire at various dates through 2076.
Certain of these leases are renewable and contain provisions for periodic
increases in rent.
Rental expense was approximately $4,170,000, $3,972,000 and $3,935,000, for
1996, 1995 and 1994, respectively. Future minimum lease payments under these
leases are as follows (000s omitted):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 3,493
1998 3,157
1999 2,795
2000 2,105
2001 1,995
Thereafter 8,855
-------
Total $22,400
=======
</TABLE>
-78-
<PAGE> 79
(17) Legal Matters:
The Company and certain of its present and former directors and executive
officers are defendants in two lawsuits, one of which is a derivative suit. Such
suits allege that certain of the defendants engaged in a number of allegedly
improper and illegal activities. No monetary relief is sought from the Company
other than costs in the derivative action. The Company does not believe that the
outcome of the foregoing litigation will have a material adverse impact on the
consolidated financial condition, results of operations or liquidity of the
Company.
Various other legal actions and proceedings are pending or are threatened
against the Company and its subsidiaries, some of which seek relief or damages
in amounts that are substantial. Unlike the aforementioned matters, however,
these actions or proceedings arose in the ordinary course of business. Due to
the complex nature of some of these matters, it may be a number of years before
they are ultimately resolved. After consultation with legal counsel, management
believes the aggregate liability, if any, resulting from such pending or
threatened actions and proceedings will not have a material adverse effect on
the Company's consolidated financial condition, results of operations or
liquidity.
(18) Off-Balance Sheet Risk:
In the normal course of business, the Company utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These off-balance sheet activities include commitments to extend
credit, commercial letters of credit and standby letters of credit. The credit
and market risks associated with these financial instruments are generally
managed in conjunction with the Company's balance sheet activities and are
subject to normal credit policies, financial controls and risk limiting and
monitoring procedures. The maximum risk may exceed the amounts recognized in the
consolidated statements of condition because these amounts vary depending on the
nature of the underlying instrument and the related accounting policy.
Credit losses may be incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Company's exposure to credit loss
is represented by the contractual amount of the commitments to extend credit,
commercial letters of credit and standby letters of credit. This is the maximum
potential loss of principal in the event the commitment is drawn upon and the
counterparty defaults. In addition, the measurement of the risks associated with
these financial instruments is meaningful only when all related and offsetting
transactions are considered.
Commitments to extend credit are legally binding agreements to lend money at
predetermined interest rates for a specific period of time. The exposure to loss
is minimized by maintaining specific credit standards and by requiring the
borrower to comply with certain terms and conditions prior to the disbursement
of funds. Collateral is obtained when deemed necessary and may include, but is
not limited to cash, accounts receivable, inventory, equipment, real estate, or
other property. Since commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent the total amount of future
outlays. The Company had commitments to fund loans of approximately $222.8
million at December 31, 1996.
Commercial letters of credit are issued to facilitate certain trade
transactions. The risks associated with these transactions are reduced since the
contracts are generally for a short commitment period. Collateral is obtained
when deemed necessary and may include, but is not limited to, cash, merchandise
or other property. The Company had outstanding commercial letters of credit of
$74.8 million at December 31, 1996.
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The Company issues standby letters
of credit to ensure contract performance or assure payment by its customers. The
risk involved in issuing standby letters of credit is the same as the credit
risk involved in extending loan facilities to customers and they are subject to
the same credit approvals and monitoring procedures. Collateral is obtained when
deemed necessary and generally consists of time deposits with the Bank. The
Company had $18.2 million of outstanding standby letters of credit at December
31, 1996.
-79-
<PAGE> 80
(19) Supplemental Information - Consolidated Statements of Operations:
Included in net other operating expenses for each of the three years ended
December 31, 1996 were the following components, which individually amounted to
more than 1% of gross revenues (000s omitted) during any one of the respective
years:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Furniture and equipment expense $ 4,666 $ 3,712 $ 3,486
Legal expense 2,722 2,980 2,622
Data processing 2,533 3,132 3,352
Advertising and marketing 2,461 2,306 1,496
Stationery and supplies 1,651 1,590 1,162
Telecommunications 1,377 1,510 1,406
Other losses 919 2,021 1,201
Insurance 743 1,665 2,789
Operating costs and writedowns of
other real estate, net 566 2,929 2,954
Overdraft charge offs 489 3,480 996
Other-less than 1% of gross revenues 11,671 9,575 8,806
------- ------- -------
Total other operating expenses, net $29,798 $34,900 $30,270
======= ======= =======
</TABLE>
There were no components of other operating income, which individually amounted
to more than 1% of gross revenues during any one of the three years ended
December 31, 1996.
-80-
<PAGE> 81
(20) Parent Company Financial Information:
Condensed financial information for Capital Bancorp (Parent Company only) is as
follows (000s omitted):
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Assets:
Cash and short-term investments $ 8,239 $ 6,285
Investment in Capital Bank 129,789 109,520
Other assets 745 498
-------- --------
Total assets $138,773 $116,303
======== ========
Liabilities and Stockholders' equity:
Long-term debt $ 1,320 $ 1,650
Other liabilities 1,711 928
-------- --------
Total liabilities 3,031 2,578
Stockholders' equity 135,742 113,725
-------- --------
Total liabilities and
stockholders' equity $138,773 $116,303
======== ========
STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Income:
Dividends from Bank subsidiary $ 4,400 $ 4,400 $ 4,400
Management fees from Bank
subsidiary -- 266 456
Other 293 216 61
-------- ------- --------
Total income 4,693 4,882 4,917
-------- ------- --------
Expenses:
Salaries and employee benefits 12 166 420
Interest expense 121 159 194
Other expenses 1,410 1,518 533
-------- ------- --------
Total expenses 1,543 1,843 1,147
-------- ------- --------
Income before income taxes and
equity in undistributed income
of subsidiary 3,150 3,039 3,770
Credit for income taxes 452 493 228
-------- ------- --------
Income before equity in
undistributed income
of subsidiary 3,602 3,532 3,998
Equity in undistributed income of
subsidiary 16,602 13,569 9,206
-------- -------- --------
Net income $ 20,204 $ 17,101 $ 13,204
======== ======== ========
</TABLE>
-81-
<PAGE> 82
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $20,204 $17,101 $13,204
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 9 9 9
Undistributed income of subsidiary (16,602) (13,569) (9,206)
Increase in other assets (247) (220) (43)
Increase (decrease) in other
liabilities 776 159 (184)
------- ------- -------
Net cash provided by operating
activities 4,140 3,480 3,780
------- ------- -------
Cash flows from financing activities:
Cash dividends (2,489) (2,429) (2,313)
Repayment of long-term debt (330) (330) (625)
Proceeds from stock options exercised 681 1,897 1,532
Repurchase of Common Stock (48) -- --
Redemption of fractional shares -- (2) --
------- ------- -------
Net cash used in financing
activities (2,186) (864) (1,406)
------- ------- -------
Net increase in cash and
cash equivalents 1,954 2,616 2,374
Cash and cash equivalents at beginning
of year 6,285 3,669 1,295
------- ------- -------
Cash and cash equivalents at end
of year $ 8,239 $ 6,285 $ 3,669
======= ======= =======
Supplemental Disclosure:
Interest paid during the period $ 121 $ 158 $ 223
======= ======= =======
</TABLE>
NOTES TO PARENT COMPANY INFORMATION
Long-term debt at December 31, 1996, includes a term loan payable to an
affiliate of a principal stockholder with an outstanding principal balance of
$1,320,000. Interest is charged at the prime rate, payable monthly. Principal
payments in the amount of $330,000 are due annually until May 31, 2000.
-82-
<PAGE> 83
(21) Fair Value of Financial Instruments:
The following disclosures of estimated fair value amounts of financial
instruments have been determined by the Company using available market
information and other valuation methodologies. Considerable judgment is
necessarily required to interpret market data and develop the estimates of fair
value. The estimated fair value amounts presented are not necessarily indicative
of amounts the Company could realize in a current market exchange. The use of
different assumptions and/or valuation methodologies could have a material
effect on the estimated fair value amounts.
The information presented herein is based on pertinent information available to
the Company as of December 31, 1996. The estimated fair value amounts have not
been comprehensively revalued since that time, and the current estimated fair
value of these financial instruments may have changed significantly since that
point in time.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash, short-term investments, funds purchased and other short-term borrowings,
and due to clients:
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities:
For securities held to maturity or available for sale, fair values are primarily
based on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Loans:
The fair value of loans generally is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Accounts receivable - factoring subsidiary:
Accounts receivable held by Capital Factors turn over quickly. Interest earning
advances made to clients against such receivables carry variable interest rates
based upon the prime rate and reprice as the prime rate changes. The carrying
amount is believed to be a reasonable approximation of fair value.
Acceptances:
Amounts due from customers on acceptances and payable for acceptances
outstanding are non-interest bearing items which turn over quickly. The carrying
amount is believed to be a reasonable approximation of fair value.
Deposit Liabilities:
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using estimated current
rates for deposits of similar remaining maturities.
Long-term debt:
All long-term debt, except for a $10.0 million fixed rate subordinated note
privately placed by Capital Factors, is subject to variable rates of interest
based upon either the prime rate or the London interbank offering rate. The
carrying amount of the debt with variable interest rates is believed to be a
reasonable approximation of fair values. The Company believes the interest rate
on the subordinated note approximates rates currently available to the Company
and therefore, the carrying amount is a reasonable estimate of fair value.
-83-
<PAGE> 84
Commitments to extend credit, standby letters of credit and commercial letters
of credit:
The fair value of loan commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements.
The estimated fair values of the Company's financial instruments are as follows
(000s omitted):
<TABLE>
<CAPTION>
1996 1995
----------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- -------- --------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term
investments $ 181,259 $ 181,259 $213,903 $213,903
Securities 218,486 218,708 240,504 241,181
Loans, net 818,033 822,354 713,491 727,401
Accounts receivable -
factoring subsidiary, net 449,528 449,528 316,506 316,506
Due from customers
on acceptances 29,900 29,900 32,413 32,413
Financial liabilities:
Deposits 1,096,825 1,096,068 1,038,755 1,041,050
Funds purchased and other
short-term borrowings 79,905 79,905 86,133 86,133
Long-term debt 202,220 202,220 176,650 176,650
Due to clients 191,489 191,489 128,578 128,578
Acceptances outstanding 29,900 29,900 32,413 32,413
Unrecognized financial
instruments:*
Commitments to extend
credit 984 984 313 313
Standby letters of credit 128 128 121 121
</TABLE>
- -----------------
* The amounts shown under "carrying amount" represent accruals of deferred
income (fees) arising from those unrecognized financial instruments.
(22) Treasury Stock:
During 1995, all of the shares of treasury stock (120,000) were sold by the Bank
for $2.1 million.
(23) Issuance of Subsidiary's Common Stock:
During the third quarter of 1996, Capital Factors Holding, Inc. completed an
initial public offering of 2,300,000 shares of its Common Stock at an offering
price of $8.50 per share. Prior to this offering, all of the Common Stock was
owned by the Bank. The net proceeds from the offering, which totaled
approximately $17.6 million, were used to reduce Capital Factors Holding, Inc.'s
indebtedness to the Bank under an outstanding line of credit. As a result of the
offering, the Bank's ownership of Capital Factors Holding, Inc. was reduced to
approximately 81% of the outstanding Common Stock. The Bank's pro rata share of
Capital Factors Holding, Inc.'s equity immediately following the offering
exceeded the recorded investment therein, resulting in a gain, net of applicable
taxes, of approximately $4.5 million. This gain was recorded as an increase in
capital surplus and excluded from the determination of consolidated net income.
-84-
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Capital Bancorp and Subsidiaries
We have audited the accompanying consolidated statements of condition of Capital
Bancorp and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the management of Capital Bancorp and
subsidiaries. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Capital Bancorp and subsidiaries at
December 31, 1996 and 1995, the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Miami, Florida
February 28, 1997
-85-
<PAGE> 86
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-86-
<PAGE> 87
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following discussion contains information regarding the directors and
executive officers of Capital Bancorp ("Bancorp") and Capital Bank.
Daniel M. Holtz, age 37, has been a Director of Bancorp since June 1988. Mr.
Holtz was appointed President and Chief Operating Officer of Bancorp in February
1994 and subsequently was elected Chairman of the Board, President and Chief
Executive Officer in October 1994. Additionally, in October 1994, Mr. Holtz was
elected Chairman of the Board, President and Chief Executive Officer of Capital
Bank. Mr. Holtz was first elected an officer of Capital Bank in 1983 and was
elected President and Chief Operating Officer in October 1991. Mr. Holtz has
also served as a Director of Capital Factors Holding, Inc. from 1994 to the
present and of Capital Factors, Inc. from 1985 to 1987 and from 1993 to the
present. Mr. Holtz was President and Chief Executive Officer of Capital Bank of
California from September 1987 to November 1991 and Director from July 1985
until June 1993 when the bank was declared insolvent and closed by the
California Superintendent of Banks. Mr. Holtz is the son of Fana Holtz and
brother of Javier J. Holtz.
Fana Holtz, age 62, is a private investor and has been Vice Chairman of the
Board of Directors of Bancorp since its formation in 1981. She received a
Degree in Pharmacology in 1956. Additionally, she is Vice President of the Mount
Sinai Hospital Foundation and serves as Vice President of Temple Emanu-el, as
well as a member of its Board of Directors. Fana Holtz is the mother of Daniel
M. Holtz and Javier J. Holtz.
Hugh F. Culverhouse, Jr., age 48, has been a Director of Bancorp since July
1995. He is an attorney and certified public accountant and has practiced with
the Securities and Exchange Commission and the United States Attorney's
office. Mr. Culverhouse has had his own law firm since 1987 and also serves as
a director of Del Webb Corporation, a real estate development corporation.
Russell W. Galbut, age 44, has been a Director of Bancorp since October
1992. Mr. Galbut has been President and Managing Director of U.S. Builders and
Developers Corporation since 1976 and the Managing Director of the Crescent
Heights Companies, local real estate development companies, since 1989. He has
also been President of the Galbut Family of Companies, Inc. since 1976. Mr.
Galbut is a certified public accountant and an attorney.
Craig L. Platt, age 42, has been a Director of Bancorp and Capital Bank
since April 1993. Currently he is a Senior Vice President with Oppenheimer &
Co., Inc. From 1990 through 1994, he was a Senior Vice President/Investments at
Kidder, Peabody & Co., Inc., New York. Prior to 1990, he was an Associate with
Morgan Stanley & Co., Inc., New York.
Jeffrey H. Porter, age 37, has been a Director of Bancorp since May 1993. Since
April 1992, he has been a Partner and Head Securities Trader of Porter Capital
Management Company, an investment advisory company registered in the State of
California. Prior to April 1992, he was a partner of J. Porter & Co.,
California.
Leon J. Simkins, age 69, served as Director of Capital Bank prior to joining
Bancorp's Board of Directors in 1985. Mr. Simkins has been Chairman and
President of Simkins Industries, a manufacturer of cardboard products, since
1963.
Gerald M. Stern, age 59, has been a director of Bancorp and Capital Bank since
October 1996. Prior to such service, Mr. Stern served a two-year term as the
United States Department of Justice's Special Counsel for Financial Institution
Fraud. Mr. Stern also served as Executive Vice President, Senior General
Counsel, Secretary and a member of the Board of Occidental Petroleum
Corporation. He was with such company from 1981 until his retirement in 1992.
Prior to joining Occidental Petroleum Corporation, Mr. Stern practiced law as
the founding partner of Rogovin, Stern and Huge (1976 to 1981) and as an
associate and partner of the law firm of Arnold and Porter (1964 to 1976).
Javier J. Holtz, age 36, has been a Senior Vice President of Bancorp since
January 1990 and was appointed Executive Vice President of Capital Bank in
September 1994, where he formerly served as Senior Vice President. Mr. Holtz has
been a Director of Capital Bank since 1988. Additionally, Mr. Holtz has been a
director of Capital Factors Holding, Inc. since 1994 and of Capital Factors,
Inc. since August 1987 and was elected Chairman of the Board of such companies
in October 1994 and Executive Vice President in November 1994. In October 1994,
Mr. Holtz was elected Chairman of the Board of Capital Bank, N.A., located in
Rockville, Maryland. Mr. Holtz is the son of Fana Holtz and brother of Daniel M.
Holtz.
Simon S. Ferro, age 43, has served as a Director of Capital Bank since March
1993. Mr. Ferro joined the law firm of Adorno & Zeder, P.A. as a partner in
August 1995. During the previous four years, he practiced as a senior associate
at the firm of Becker & Poliakoff, P.A. Mr. Ferro also currently serves as a
director of the Overseas Private Investment Corp., a federal corporation that
provides services to American companies interested in investing overseas,
Fabulous Diamonds, an arts and crafts retail store, and the non-profit
organization, Battered Women's Clemency Project.
-87-
<PAGE> 88
Ronald S. Chase, age 52, has served as a Director of Capital Bank since July
1993. Mr. Chase is the President and owner of Chase Holdings and Advisory
Service, Inc., which provides financial advisory services to corporations and
litigation attorneys. He also serves as President and is the owner of RSC
Development, Inc., a residential developer, and CFAT H20, Inc., a water
treatment facility, both of which are located in Ocala, Florida. Mr. Chase is a
certified public accountant who served as Managing Partner for several offices
of Deloitte & Touche, LLP for 14 of his 25 years with the firm. He has also
served as a director of Capital Factors Holding, Inc. and Capital Factors, Inc.
since 1992, and of the Greater Miami Neighborhood, Inc., a not-for-profit
affordable housing developer.
Dr. John O. Brown, age 74, has served as a Director of Capital Bank since
February 1978. Dr. Brown is a practicing opthamologist and has had his own
practice for 40 years. He is also the President of GCS Travel, Inc., a travel
company.
Charles Boyce, age 37, is an Executive Vice President and Chief Administrative
Officer of Capital Bank, with responsibilities including various operations and
administrative functions. Mr. Boyce joined Capital Bank in December 1993. Prior
to joining the Bank in his current position, Mr. Boyce was Senior Vice President
and Chief Financial Officer of Capital Bank of California from 1989 to 1993,
when the bank was declared insolvent and closed by the California Superintendent
of Banks.
Thomas J. Flood, age 59, is a Senior Vice President of Bancorp and Executive
Vice President and Chief Retail Banking Officer of Capital Bank. From 1978 to
1992, Mr. Flood was Senior Vice President of Capital Bank, with responsibilities
including operations and branch administration. In 1992, Mr. Flood was elected
Executive Vice President of Capital Bank and is responsible for all retail
banking activities.
Lucious T. Harris, age 40, is Senior Vice President and Treasurer of Bancorp
and Executive Vice President and Chief Financial Officer of Capital Bank. Mr.
Harris joined Capital Bank in 1987 as Manager of the Internal Audit department.
In 1989, he was elected Controller and Principal Accounting Officer of Capital
Bank and Assistant Treasurer of Bancorp. In 1992, Mr. Harris was elected as
Treasurer of Bancorp and Executive Vice President and Chief Financial
Officer of Capital Bank. Mr. Harris was appointed Senior Vice President of
Bancorp in October 1995. Prior to 1987, Mr. Harris held various positions at
Arthur Andersen & Co.
John W. Kiefer, age 50, is a Senior Vice President of Bancorp and a Director
of Capital Bank since October 1992. Mr. Kiefer is President, Chief Executive
Officer and Director of Capital Factors Holding, Inc. and Capital Factors, Inc.
From 1984 to 1986, Mr. Kiefer was Senior Vice President/Regional Manager at
Barclays American/Commercial, Inc. and served as Vice President from 1981 to
1984. In 1987, Mr. Kiefer joined the Company at his present positions.
Timothy E. Kish, age 57, has been Corporate Secretary of Bancorp since January
1994 and Senior Vice President since October 1995. Mr. Kish has also been
General Counsel of the Bank since September 1992, and was appointed Corporate
Secretary in January 1994 and Executive Vice President of the Bank in September
1994. Mr. Kish is also Corporate Secretary and General Counsel of Capital
Factors Holding, Inc. Mr. Kish also served as Director, Vice President and
General Counsel of Bancorp from October 1992 to May 1995. Prior to joining the
Company in 1992, Mr. Kish was a shareholder in the law firm Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A. from 1980 to 1992.
David Konfino, age 49, is an Executive Vice President and Chief International
Officer of Capital Bank responsible for the International Division. Prior to
joining Capital Bank, Mr. Konfino was an officer of C&S National Bank from 1971
to 1993, where he held various positions in the domestic and international
divisions, including senior vice president and manager of the international
division. Mr. Konfino joined Capital Bank in October 1993.
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<PAGE> 89
Compliance With Section 16 Of The Securities Exchange Act Of 1934. Section 16(a)
of the Securities Exchange Act of 1934 requires that the Company's executive
officers, directors and persons who own at least 10% of the Common Stock of the
Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc. Executive officers, directors and 10% shareholders are required by
regulation to furnish the Company with all such Section 16(a) filings made.
Based solely upon a review of the filings furnished to the Company during the
fiscal year ended December 31, 1996, management believes that such filings were
filed on a timely basis.
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<PAGE> 90
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation for services in all
capacities to Bancorp and its subsidiaries rendered during the years ended
December 31, 1996, 1995 and 1994 for the Chief Executive Officer and the four
most highly compensated executive officers of Bancorp and its subsidiaries,
other than the Chief Executive Officer, whose aggregate remuneration exceeded
$100,000 (the "Named Executive Officers"):
- -------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE (1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------ ------------
Name Other Securities
and Annual Underlying All Other
Principal Compen- Options/ Compen-
Position Year Salary Bonus sation(2) SARs(3) sation
($) ($) ($) # ($)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Holtz 1996 335,307 234,693 14,750(4) 18,000(7) --
Chairman, 1995 335,307 275,000 14,250(4) 18,000(6) --
President & 1994 330,307 250,000 15,000(4) 45,000(5) --
CEO, Bancorp
and Capital
Bank
John W. Kiefer 1996 300,000 372,835 14,750(4) 5,000(7) 250,000(8)
Senior Vice 1995 275,000 300,000 14,850(4) 12,500(6) 300,000(9)
President, 1994 231,000 200,000 15,300(4) 30,000(5) --
Bancorp;
President &
CEO, Capital
Factors Holding,
Inc.
Javier J. Holtz 1996 223,042 85,953 14,750(4) 6,000(7) --
Senior Vice 1995 218,845 62,500 14,500(4) 6,000(6) --
President, 1994 199,904 45,000 14,750(4) 22,500(5) --
Bancorp;
Executive Vice
President,
Capital Bank;
Chairman and
Executive Vice
President,
Capital Factors
Holding, Inc.
Thomas J. Flood 1996 170,116 46,222 -- 6,000(7) 1,500(10)
Senior Vice 1995 166,780 35,000 -- 6,000(6) 1,500(10)
President, 1994 163,525 33,500 -- 22,500(5) 1,500(10)
Bancorp;
Executive Vice
President,
Capital Bank
Timothy E. Kish 1996 156,379 41,184 -- 5,000(7) 1,500(10)
Senior Vice 1995 153,314 30,000 -- 5,000(6) 1,533(10)
President & 1994 148,129 22,000 -- 15,000(5) 617(10)
General Counsel,
Bancorp;
Executive Vice
President
& General
Counsel,
Capital Bank
</TABLE>
(Footnotes on following page.)
-90-
<PAGE> 91
# -- Number of options granted.
$ -- Dollar amounts.
(1) Bancorp or its subsidiaries did not grant restricted stock awards, pay any
long term compensation or pay any other compensation required to be set
forth in this table to the Named Executive Officers during any year, except
as identified in this table or the footnotes hereto.
(2) Bancorp or its subsidiaries provide automobiles and certain other benefits
for each officer listed hereon. After reasonable inquiry, management has
determined that the fair value of the use of the automobiles and other
benefits does not exceed the lesser of 10% of annual salary and bonus, or
$50,000 for each officer.
(3) There were no SARs (Stock Appreciation Rights) granted by Bancorp. For
information regarding outstanding SARs granted by Capital Factors Holding,
Inc., see "-- Capital Factors Option Grants" below.
(4) Amount represents directors fees paid to the Named Executive Officer in
connection with his service as a director of Capital Factors Holding, Inc.
and Capital Factors. The Named Executive Officers did not receive any
directors fees for service on the Boards of Bancorp or Capital Bank.
(5) Restated to reflect 3-for-2 stock split effected in the form of a 50% stock
dividend paid during 1995.
(6) These options were granted by Bancorp on February 22, 1996.
(7) These options were granted by Bancorp on January 27, 1997. Daniel Holtz,
John Kiefer and Javier Holtz also received options to purchase 10,000,
120,000, and 25,000 shares, respectively, of Common Stock of Capital
Factors Holding, Inc. For more information, see "-- Capital Factors Option
Grants" below.
(8) Represents a one-time cash bonus paid to Mr. Kiefer upon the execution of
his new employment agreement pursuant to the terms thereof, and not with
respect to any particular year.
(9) Represents a cash bonus which was paid to Mr. Kiefer upon the expiration of
his employment agreement pursuant to the terms thereof, which terminated on
December 31, 1995, and not with respect to any particular year.
(10) Amount represents contributions to the Named Executive Officer's 401(k)
retirement account by Bancorp and its subsidiaries.
-91-
<PAGE> 92
1996 Stock Option Grants. The following table sets forth certain information
with respect to options to purchase shares of Common Stock of Bancorp granted
under Bancorp's 1992 Stock Option Plan to the Named Executive Officers for the
1996 fiscal year and represents all options granted by Bancorp to such executive
officers for the period. All such options are granted for terms of five years
and vest 50% after three years, 75% after four years and 100% after four and
one-half years. In accordance with SEC rules, the table also describes the
hypothetical gains that would exist for the respective options based on assumed
rates of annual compound stock appreciation of 5% and 10% from the date of grant
to the end of the option term. These hypothetical gains are based on assumed
rates of appreciation and, therefore, the actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock, overall
stock market conditions, and the executive officer's continued employment with
the Company. As a result, the amounts reflected in this table may not
necessarily be achieved.
Option/SAR Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for
Individual Grants Option Term (4)
- ---------------------------------------------------------------------------- ------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees Exercise or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) (2) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel M. Holtz 3,053(3) 1.7% $ 36.03 January 2002 $ 17,615 $ 51,015
14,947(3) 8.2% $ 32.75 January 2002 $135,270 $298,791
John W. Kiefer 5,000(3) 2.8% $ 32.75 January 2002 $ 45,250 $ 99,950
Javier J. Holtz 3,053(3) 1.7% $ 36.03 January 2002 $ 17,615 $ 51,015
2,947(3) 1.6% $ 32.75 January 2002 $ 26,670 $ 58,911
Thomas J. Flood 6,000(3) 3.3% $ 32.75 January 2002 $ 54,300 $119,940
Timothy E. Kish 5,000(3) 2.8% $ 32.75 January 2002 $ 45,250 $ 99,950
</TABLE>
- -----------------------
# -- Number of options granted.
$ -- Dollar amounts.
(1) There were no SARs (Stock Appreciation Rights) granted during 1996 by
Bancorp. For more information regarding outstanding options and
SARs granted by Capital Factors Holding, Inc., see "-- Capital Factors
Option Grants" below.
(2) Exercise price is based on the Nasdaq National Market closing price of
Bancorp's Common Stock for the trading period immediately prior to the
grant. For stockholders who own more than 10% of the outstanding voting
stock of Bancorp (directly or indirectly by attribution to immediate family
members pursuant to applicable regulations), the exercise price for
incentive options with aggregate fair value of up to $100,000 is 110% of
the fair market value of the stock or $36.03.
(3) This option was granted by Bancorp in January 1997 for service rendered
during the 1996 fiscal year.
(4) Potential Realizable Value assumes that any shares acquired by the exercise
of options are held until the end of the five-year option term.
-92-
<PAGE> 93
Capital Factors Option Grants. Certain Named Executive Officers also received
options to acquire shares of the Common Stock of Capital Factors Holding, Inc.
in connection with the initial public offering of such shares, which was
undertaken in the third quarter of 1996 (the "Capital Factors Options"). John
Kiefer received options to acquire 120,000 shares of Capital Factors Holding,
Inc. Common Stock, Daniel Holtz received options to acquire 10,000 shares of
Capital Factors Holding, Inc. Common Stock and Javier Holtz received options to
acquire 25,000 shares of Capital Factors Holding, Inc. Common Stock. Such
options aggregated 24.4%, 2.1% and 5.1%, respectively, of the total number of
options granted to the employees of Capital Factors Holding, Inc. during the
1996 fiscal year. The exercise price for the Factors Options is $8.50 per share.
Such options were granted for ten-year terms and vest in 20% increments over a
five-year period. Based on assumed rates of annual compound stock appreciation
of 5% and 10% from the date of grant to the end of the option term, the
potential realizable value of the Capital Factors Options would be $642,000
and $1,626,000 for John Kiefer, $53,500 and $135,500 for Daniel Holtz
and $133,750 and $338,750 for Javier Holtz, respectively.
Pursuant to an agreement between Capital Bank, Capital Factors Holding, Inc. and
Capital Factors, Inc., no additional shares of the Common Stock of Capital
Factors Holding, Inc. may be issued that would reduce Capital Bank's interest in
Capital Factors Holding, Inc. below 80%, without Capital Bank's written
approval, for the period that Capital Bank owns at least 80% of the outstanding
Common Stock of Capital Factors Holding, Inc. (the "Eighty Percent Period").
During the Eighty Percent Period, each option holder, including the Named
Executive Officers listed above, may only exercise 34.9% of the Factors Options
that have been granted to them. The remaining options, even if vested, may not
be exercised without the written approval of Capital Bank during the Eighty
Percent Period. Such options are accompanied by stock appreciation rights which
will become exercisable as determined by the Compensation Committee of Capital
Factors Holding, Inc., but in no event prior to April 15, 2001, and only if
Capital Bank does not give approval for the exercise of the Capital Factors
Options.
Option Exercises. The following table shows stock option exercises during 1996
by the Named Executive Officers, including the value realized upon exercise. In
addition, this table describes the number of unexercised Bancorp options and
the value of unexercised in-the-money Bancorp options at the end of the 1996
fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year,
and December 31, 1996 Option/SAR Values(1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value December 31, 1996(#) December 31, 1996($)(2)
Acquired Realized
on Exercise ($) Exercisable/ Exercisable/
Name (#) (2) Unexercisable(3) Unexercisable(4)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel M. Holtz 0 $ 0 168,001/18,000(4) $2,421,431/$0
John W. Kiefer 4,500(3) 96,075 54,501/ 5,000(4) $ 602,515/$0
Javier J. Holtz 0 0 6,001/ 6,000(4) $1,486,429/$0
Thomas J. Flood 4,500(3) 89,325 73,502/ 6,000(4) $1,072,533/$0
Timothy E. Kish 0 0 35,501/ 5,000(4) $ 375,014/$0
</TABLE>
- ------------
# -- Number of options granted.
$ -- Dollar amounts.
(1) There were no SARs (Stock Appreciation Rights) granted, outstanding or
exercised during any period by Bancorp. For information regarding
outstanding options and SARs granted by Capital Factors Holding, Inc.,
see "-- Capital Factors Option Grants" above.
(2) Value Realized and Value of Unexercised In-the-Money Options are computed
based upon the Nasdaq National Market closing price of Bancorp's Common
Stock on December 31, 1996.
(3) Includes effect of 3-for-2 stock split effected in the form of a 50% stock
dividend paid by Bancorp in 1995.
(4) This number includes options which were granted by Bancorp in January 1997
for services rendered during the 1996 fiscal year. It is assumed that such
options had no current value at December 31, 1996 because they were granted
at the fair market value of the Common Stock as determined on the grant
date.
-93-
<PAGE> 94
Pension Plan Table
- ------------------
Annual amounts of normal retirement pension payable under the Capital Bancorp
Employees Pension Plan (the "Pension Plan") are illustrated in the following
table. The illustration assumes retirement as of December 31, 1996 at the normal
retirement age of 65.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 31,320 $ 41,760 $ 52,200 $ 52,200 $ 52,200
150,000 38,070 50,760 63,450 63,450 63,450
175,000 38,070 50,760 63,450 63,450 63,450
200,000 38,070 50,760 63,450 63,450 63,450
225,000 38,070 50,760 63,450 63,450 63,450
250,000 38,070 50,760 63,450 63,450 63,450
300,000 38,070 50,760 63,450 63,450 63,450
400,000 38,070 50,760 63,450 63,450 63,450
450,000 38,070 50,760 63,450 63,450 63,450
500,000 38,070 50,760 63,450 63,450 63,450
</TABLE>
The Pension Plan was established on January 1, 1983 and provides for a defined
benefit pension, which covers substantially all employees that have completed
one year of service and have attained age 21. Officers of the Company and its
subsidiaries participate in the Pension Plan on the same basis as all other
eligible employees. Each subsidiary funds the Pension Plan for its proportionate
share, based on their respective employees. The normal retirement age under the
Pension Plan is the later of age 65 or the age of the participant on the 5th
anniversary of plan participation. The monthly pension benefit for normal
retirement is 1.2% of average monthly compensation for the five consecutive
years during the last ten years of service that produce the highest average
salary, plus an additional .6% of the portion of the average monthly
compensation during these same five years in excess of the monthly Social
Security integration level. The entire monthly pension benefit for normal
retirement will be multiplied by each year of service at normal retirement age,
not to exceed 25 years. The terms of the Pension Plan provide that the amount of
monthly compensation taken into consideration for determination of benefits may
not exceed the Internal Revenue Service limit, which in 1996 was $12,500
($150,000 annually). Consequently, salary and other compensation for the Named
Executive Officers, as shown on the Summary Compensation Table above, in excess
of the Internal Revenue Service limit, are not considered in the determination
of pension benefits. The Pension Plan provides for early retirement at age 55
with 10 years continuous employment as well as full vesting of benefits upon
termination of employment before retirement age and after completion of 7 years
continuous employment. In the event of the death of an active participant, the
total value of the decedents' accrued pension benefit will be paid to the
designated beneficiary by the method selected by the beneficiary and approved by
the Pension Plan administrator. The benefit will be based upon the years of
service and number of years before normal retirement age. The Pension Plan does
not provide for disability benefits. As of December 31, 1996, Messrs. Daniel
Holtz, John Kiefer, Javier Holtz, Thomas Flood and Timothy Kish had credited
service (to the nearest whole year) under the Pension Plan of 14, 10, 14, 19 and
4 years, respectively.
The Tax Equity and Fiscal Responsibility Act of 1982 ("1982 Tax Act") limits the
maximum annual retirement benefits payable to an individual under a pension
plan. For 1996, the maximum annual benefits payable was $120,000. Such
limitation may be increased from time to time.
Directors' Compensation
- -----------------------
Non-officer directors of Bancorp and Capital Bank receive compensation
aggregating $1,000 per Board of Directors meeting attended and $400 for each
Board committee meeting attended. Committee chairmen receive $500 for each
committee meeting attended. All directors of Capital Factors receive a monthly
retainer of $1,000 and $250 for each meeting attended. Non-officer Directors of
Bancorp and Capital Bank also receive options for their service on the
respective boards of directors. For the 1996 fiscal year, each outside director
received an option to acquire a total of 5,000 shares of Common Stock. Certain
non-employee directors are also reimbursed for travel expenses incurred in
connection with attendance of Board and Committee meetings.
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<PAGE> 95
In addition, certain non-employee directors of Bancorp and Capital Bank have
provided and are providing services as directors, which are outside of the Board
and committee meetings. For example, the members of the Independent Committee
have been involved in the issuance of a report in connection with the Derivative
Action discussed in Item 3 hereof. For such service and other services performed
by non-employee directors on behalf of Bancorp and Capital Bank, each director
receives a fee of $200 per hour. Hugh Culverhouse, Gerald Stern and Jeffrey
Porter received approximately $37,900, $7,300, and $7,800, respectively, in
connection with such director services rendered to Bancorp and Capital Bank
during 1996.
Employment and Consulting Agreements
- ------------------------------------
Capital Bank has entered into employment agreements (the "Employment
Agreements") with Daniel M. Holtz, Javier J. Holtz, Thomas J. Flood and Timothy
E. Kish, and three other executive officers (collectively, the "Executive
Officers"). The Employment Agreements are for the period from January 1, 1996 to
May 31, 1998 and provide for annual base salaries, subject to adjustment in the
discretion of the Board of Directors. Upon the execution of the Employment
Agreements, each Executive Officer, except Daniel Holtz, received a $50,000 loan
from Bancorp payable in five equal installments of principal plus all
accrued interest through the date of payment. The Executive Officers (other than
Daniel Holtz) will receive bonuses on June 1 of each year during the term of the
Agreement in an amount equal to the amount of principal and interest then due
under their loan (the "Loan Bonus"). The Employment Agreements also provide for
an annual incentive compensation pursuant to an incentive compensation plan
adopted annually by the Board of Directors of Capital Bank. The bonus amounts
payable pursuant to such plan are based on the achievement of (i) a specific
earnings goal by Capital Bank (excluding the earnings of Capital Factors, Inc.)
set by the Bank's Board of Directors, and (ii) certain other individual goals
related to each Executive Officer's job responsibilities. Daniel Holtz's
incentive-related compensation also includes a specific Capital Bank
consolidated earnings goal, which includes the operations of Capital Bank and
Capital Factors, Inc.
The Employment Agreements also provide for the usual benefits afforded to
employees of Capital Bank, such as medical, disability and life insurance
benefits. The Executive Officers are also entitled to an automobile, along with
reimbursement of the operating expenses thereof, and stock options under
Bancorp's 1992 Stock Option Plan, in amounts and under the terms as to be
determined by Bancorp's Stock Option Committee.
Upon the termination of an Executive Officer's employment without cause, he
shall be entitled to receive, among other things, (i) his base salary and
incentive compensation through the date of termination of the Employment
Agreement and (ii) a bonus equal to the amount necessary to repay in full the
outstanding principal and accrued interest on the $50,000 signing loan (other
than Daniel Holtz). In the event of a change in control (as defined pursuant to
the Employment Agreements), if an Executive Officer terminates his employment
because of changes in his employment situation or if he is terminated by the
Company without cause within one year after a change in control, he shall
receive a single lump sum payment equal to (i) his annual base salary, incentive
compensation and value of the annual fringe benefits due to him over the
remaining term of the Employment Agreement plus (ii) the value of the portion of
his benefits under any savings, pension, profit sharing or deferred compensation
plans that are forfeited under those plans by reason of the termination of
employment. Daniel Holtz will receive, in the event of his termination pursuant
to a change in control, two times his annual base salary, incentive compensation
and annual fringe benefits for the year immediately preceding the year in which
his employment terminates, along with (ii) above.
Payments pursuant to the Employment Agreements in certain years during the term
of such agreements that would not otherwise be deductible by reason of Section
162(m) of the Internal Revenue Code of 1986, as amended, may be deferred and
become payable at such time or time as the Board of Directors determines that it
would be deductible under Section 162(m). The Employment Agreements also
contains certain non-competition covenants and covenants against solicitation of
clients and employees for a competitive business.
Capital Factors Holding, Inc. and Capital Factors have entered into an
employment agreement with John W. Kiefer, its President and Chief Executive
Officer (the "Kiefer Agreement"), for the period from January 1, 1996 through
December 31, 2000. Upon execution of the Kiefer Agreement, Mr. Kiefer received a
signing bonus of $250,000 and a $100,000 loan payable in five equal installments
of principal plus all accrued interest through the date of payment during the
term, but due in full upon earlier termination of the Agreement. The Kiefer
Agreement provides for an annual base salary to Mr. Kiefer of $300,000 in the
first year, subject to adjustment in the discretion of the Capital Factors'
Board of Directors or Compensation Committee. Mr. Kiefer will receive a bonus on
December 31 of each year during the term of the Agreement if he is then still
employed thereunder, in an amount equal to the amount of principal and interest
then due under his loan from Capital Factors. The Kiefer Agreement also provides
for an annual bonus based on Capital Factors' success in reaching certain
targets for net revenues and income
-95-
<PAGE> 96
before income taxes, with the aggregate maximum in any year being 185% of salary
if both targets are doubled.
Mr. Kiefer shall also receive deferred compensation equal to 67% of his salary
for each year that certain targets for net revenues and income before income
taxes, are met. The deferred compensation shall vest 50% after three years and
25% after each of the fourth and fifth years, provided that Mr. Kiefer is still
employed by Capital Factors, although the employment condition for vesting will
lapse after the five-year term of the Kiefer Agreement if Mr. Kiefer is employed
at that time. If at the end of the five-year term, Mr. Kiefer agrees to be
employed by Capital Factors for another five years, then all deferred
compensation that has not yet vested shall immediately vest. In addition,
pursuant to the Kiefer Agreement, upon the effective date of the initial public
offering of the Capital Factors Holding, Inc.'s Common Stock (which was in the
third quarter of 1996), Mr. Kiefer received options to purchase one percent of
Capital Factors Holding, Inc.'s Common Stock outstanding after giving effect to
such offering at the initial public offering price, subject to the terms and
conditions of Capital Factors Holding, Inc. Stock Option Plan then in effect.
Upon the termination of Mr. Kiefer's employment without cause, Mr. Kiefer shall
be entitled to receive, among other things, (i) base salary through the date of
such termination and (ii) all previous bonuses and a pro-rata of the bonus
payable, if any, for the year in which termination occurs, (iii) an acceleration
of the vesting of all deferred compensation and (iv) subject to mitigation if he
obtains subsequent employment, his base salary through the expiration date of
the Agreement. In the event of a change in control, Mr. Kiefer shall receive the
same compensation as if terminated without cause except that in lieu of the
compensation payable in (iv) above, Mr. Kiefer shall be entitled to receive a
lump sum payment equal to two times his salary and prior year's bonus if he
terminates his employment because of changes in his employment situation and an
additional amount equal to two times his prior year's deferred compensation, if
any, if he is terminated by the Company without cause within one year after a
change in control. Upon termination for "cause" or upon voluntary resignation,
Mr. Kiefer shall be entitled to receive his base salary through the date of such
termination.
Payment of the bonus and deferred compensation in certain years during the term
that would not otherwise be deductible by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended, is subject to certain approvals.
Capital Factors Holding, Inc.'s Compensation Committee may, at its option, defer
payment of amounts that would not otherwise be deductible under Section 162(m)
until a time when it would be deductible. The Kiefer Agreement also contains
certain non-competition covenants and covenants against solicitation of clients
and employees for a competitive business.
In May 1993, Capital Bank entered into a consulting agreement with Alex
Halberstein (the "Halberstein Agreement"), former director and executive officer
of Bancorp and Capital Bank. The Halberstein Agreement provides that during
the term of the agreement Mr. Halberstein assist the Company in the
renegotiation of payment of foreign non-trade related indebtedness and shall
make himself available for consultation with the officers and other
representatives of the Company as requested by the Company from time to time and
shall undertake and perform on a timely basis duties and assignments on behalf
of the Company as are requested of him by the Company. The Halberstein Agreement
provides for the payment of fees aggregating $1.3 million over a five year
period commencing in June 1993 and ending in May 1998, such fees to be allocated
between consulting services and certain non-competition covenants contained in
the Halberstein Agreement. Fees paid to Mr. Halberstein pursuant to this
agreement amounted to $217,000 during 1996.
On October 7, 1994, Capital Bank entered into a consulting agreement with Abel
Holtz, former Chairman of the Board, President and Chief Executive Officer of
Bancorp and Capital Bank. This agreement, which had been suspended since
October 25, 1994, has been terminated. Fees paid to Mr. Holtz prior to
suspension of the agreement amounted to $18,462.
Each of the above consulting agreements were entered into upon the resignation
of the named individual as an officer and employee of Bancorp and all
subsidiaries.
Change of Control Arrangement
- -----------------------------
Bancorp's 1992 Employee Stock Option Plan (the "Plan") provides that, in the
event of any change in control, any and all incentive stock options,
non-incentive stock options and/or stock appreciation rights outstanding
pursuant to the Plan shall automatically become immediately exercisable. A
change in control is defined to be the acquisition of twenty-five percent or
more of the combined voting power of all classes
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<PAGE> 97
of the Company's outstanding securities by any person, entity or group who or
which, as of the effective date of the Plans or acquisition, is not an affiliate
of the Company or any of the Company's present affiliates.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Bancorp has a Compensation Committee which is composed of the following members
of Bancorp's Board of Directors: Hugh F. Culverhouse, Jr., Russell W. Galbut,
Jeffrey H. Porter and Gerald M. Stern. In addition, Capital Bank has a
Compensation and Benefits Committee composed of the following members of the
Bank's Board of Directors: John O. Brown, Ronald S. Chase, Simon Ferro, Craig
L. Platt and Gerald M. Stern. Russell Galbut, who is a director of Bancorp,
also serves as a member of Capital Bank's Compensation and Benefits Committee.
Craig Platt and Gerald Stern serve as directors of both Bancorp and Capital
Bank.
Bancorp's Compensation Committee and Capital Bank's Compensation and Benefits
Committee are responsible for making recommendations for the annual compensation
paid to the executive officers, including the chief executive officer. No member
of the Compensation Committee or the Compensation and Benefits Committee is
serving or has served as an officer or employee of Bancorp or any of its
subsidiaries.
The Bank's Board of Directors has the final approval authority for the
compensation paid to the Chief Executive Officer and the other executive
officers of the Bank. The following are members of the Bank's Board of Directors
who do not serve on the Compensation Committee:
Daniel M. Holtz
Javier J. Holtz
John W. Kiefer
Daniel Holtz is the Chairman of the Board, Chief Executive Officer and President
of Bancorp and the Bank. Javier Holtz is a Senior Vice President of Bancorp, an
Executive Vice President of the Bank and Chairman of the Board and an Executive
Vice President of Capital Factors Holding, Inc. and Capital Factors, Inc. John
Kiefer is a Senior Vice President of the Company, and a director, Chief
Executive Officer and President of Capital Factors Holding, Inc. and Capital
Factors, Inc.
Capital Bank from time to time makes loans and extends credit to certain of its
officers and directors and their affiliates. In the opinion of management of the
Company, all of these loans and extensions of credit were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than normal risks of collectibility or
present other unfavorable features.
Capital Bank leases the space for its Miami Beach and Civic Center branch
offices from Daniel and Javier Holtz. Daniel Holtz is Chairman of the Board and
Chief Executive Officer of Bancorp and of Capital Bank. Javier Holtz is Senior
Vice President of Bancorp and Executive Vice President and Director of Capital
Bank. During 1996, payments to these individuals pursuant to these leases
totaled approximately $43,000. Capital Bank believes the terms of such
transaction to be fair, reasonable, and similar to those available from
unaffiliated parties.
Bancorp holds approximately 3.8% of the common stock of Capital Bank, N.A.,
a commercial bank whose offices are located in Rockville, Maryland. An aggregate
of approximately 6.6% of the common stock outstanding of Capital Bank, N.A. is
held by Fana Holtz, Daniel Holtz and Javier Holtz. Abel Holtz, who is the former
Chairman of the Board, Chief Executive Officer and President of the Company and
the husband of Fana Holtz, also owns approximately 12.3% of the outstanding
shares of Capital Bank, N.A. Javier Holtz, who is a director of the Bank and
Capital Factors and is an executive officer of Bancorp, the Bank and Capital
Factors, is also Chairman of the Board of Directors of Capital Bank, N.A.
Stephen Ashman, who is a director, President and Chief Executive Officer of
Capital Bank, N.A., is a Director of Capital Factors Holding, Inc. and Capital
Factors, Inc. Mr. Ashman participates in the determination of salaries of
executive officers of Capital Bank, N.A. and holds approximately 7.2% of the
outstanding common stock of Capital Bank, N.A.
Capital Bank has an agreement with Capital Bank, N.A. pursuant to which Capital
Bank provides certain consulting and related services to Capital Bank, N.A. Such
services
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<PAGE> 98
include (i) advice concerning establishment and operation of an international
banking department, (ii) advice concerning establishment and operation of a real
estate loan department (iii) consultation and advice with respect to the
formulation of long range growth and planning objectives, and (iv) such other
advisory and consultory services agreed upon by the Board of Directors of
Capital Bank and Capital Bank, N.A. In consideration for such services, Capital
Bank, N.A. offers to Capital Bank a right of first refusal to participate, if
and to the extent that Capital Bank wishes to do so, in any loan to be made by
Capital Bank, N.A. which exceeds the legal lending limit of that institution. No
value has been established on the books of the Company or its subsidiaries for
this right of first refusal. Capital Bank from time to time sells Federal funds
to and participates in certain loans with Capital Bank, N.A.
Craig Platt is currently a Senior Vice President of Oppenheimer & Co., Inc.
("Oppenheimer"). In 1996, Oppenheimer served as the managing underwriter in the
initial public offering of 2,300,000 shares of Common Stock of Capital Factors
Holding, Inc. Oppenheimer received a fee of approximately $1.4 million in
connection with such service.
Pursuant to its Bylaws, the Company is authorized to indemnify, to the extent
permitted by the laws of the State of Florida, any person who is made a party to
any lawsuit or action by reason of the fact that he or she is or was a director
or officer of the Company. By virtue of this provision, the Company is currently
advancing the legal expenses of its outside directors who were named as
defendants in the shareholder actions and outside directors and certain
non-executive officers who incurred expenses in connection with the other
matters set forth in Item 3 hereof, both of which aggregated approximately
$30,000 during 1996. Those directors have agreed in writing to repay the Company
for all or any portion of those advances which they are ultimately found not to
have been entitled to pursuant to applicable Florida law. The Company may in the
future also pay the legal expenses of its other directors who are also named
defendants in the litigation.
Under Florida law, the Company will not be required to indemnify any such
director unless the following criteria are met: (i) he or she is a party to the
litigation because of his or her status as a director or officer of the Company
and (ii) he or she is successful in his or her defense of the litigation. At the
other extreme, no indemnification can be made to a director if a judgment or
final adjudication establishes that actions or non-actions of that director were
material to the cause of action and constituted (i) a violation of criminal law
(unless the director had a reasonable cause to believe that his conduct was
lawful or had no reasonable cause to believe that his conduct was unlawful);
(ii) willful misconduct or a conscious disregard for the best interests of the
Company; or (iii) a transaction in which the director received an improper
personal benefit. In circumstances where a director seeking indemnification has
not been successful in his or her defense in the litigation but the factual
circumstances prohibiting indemnification have not been adjudicated to exist,
indemnification by the Company will not be required, but may be permitted under
Florida law. At this time, it is impossible to determine whether the
circumstances at the conclusion of the matters described in Item 3 hereof will
permit, prohibit or require indemnification by the Company of any or all of its
directors or what factors will be considered in such determination, other than
those factors set forth above.
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<PAGE> 99
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 1997
concerning (i) the directors of Bancorp and Capital Bank; (ii) the Named
Executive Officers (see Item 11); (iii) all directors and executive officers of
Bancorp and Capital Bank as a group; and (iv) any person who is known to be
the beneficial owner, as such term is defined in Rule 13d-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, of more than
5% of the outstanding shares of Bancorp's Common Stock, according to filings
by such persons with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Amount Percent
Common Stock Common Stock
Name and Address Beneficially Owned (1) Outstanding
------------------ ---------------------- ------------
<S> <C> <C>
DIRECTORS:
Daniel M. Holtz 497,500(2) 6.4%
Fana Holtz 2,790,869(3) 36.8%
Javier J. Holtz 291,778(4) 3.8%
Hugh F. Culverhouse 10,000(5) *
Russell W. Galbut 28,000(5) *
Craig L. Platt 95,416(6) 1.3%
Jeffrey H. Porter 57,786(7) *
Leon J. Simkins 717,399(8) 9.5%
Gerald M. Stern 6,000(9) *
John W. Kiefer 70,751(10) *
Simon S. Ferro 25,000(5) *
Ronald S. Chase 28,750(5) *
Dr. John O. Brown 39,535(11) *
OTHER NAMED EXECUTIVE OFFICERS:
Thomas J. Flood 126,102(12) 1.7%
Timothy E. Kish 35,501(13) *
All current directors and executive
officers of the Company and
Capital Bank as a group
(18 persons) (14) 4,952,720 59.3%
OTHER 5% OWNERS:
Abel Holtz
169 E. Flagler Street
Suite 1627
Miami, Florida 33131 677,077(15) 9.1%(15)
Alex Halberstein
1221 Brickell Avenue
Suite 1050
Miami, Florida 33131 734,692(16) 10.0%(16)
Lawrence A. Gordich
Suite 1900 Barnett Tower
701 Brickell Avenue
Miami, Florida 33131 665,893(17) 8.9%(17)
</TABLE>
- --------------------------------
* Less than 1%
(1) The nature of the reported beneficial ownership is unshared voting and
investment power unless otherwise indicated. Beneficial ownership of
Common Stock reflects shares that would be received upon the exercise of
options.
(2) Includes 322,749 shares held individually (22,500 of which Mr. Holtz has
transferred voting rights to an unaffiliated third party pursuant to an
irrevocable proxy) and 174,751 shares that he has the right to acquire
pursuant to options (156,751 of which are currently exercisable). Mr.
Holtz, individually, and together with his mother, Fana Holtz, and his
brother, Javier Holtz, filed an application with the Florida Department of
Banking and Finance (the "FDBF") to acquire and/or maintain control of the
Company, although they do not believe that such an application is legally
required. For more information, see "Legal Proceedings" in Item 3 hereof.
(3) Includes 1,527,565 shares held individually (41,250 of which Mrs. Holtz
has transferred voting rights to an unaffiliated third party pursuant to
an irrevocable proxy), 1,235,304 shares over which Mrs. Holtz claims
voting power and 28,000 shares that she has the right to acquire pursuant
to currently exercisable options. Does not include 665,893 shares, nor
presently
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<PAGE> 100
exercisable options to purchase a total of 11,184 shares, held by her
husband, Abel Holtz, as to which shares Mrs. Holtz disclaims beneficial
ownership and voting power. Mrs. Holtz, individually, and together with
her sons, Daniel Holtz and Javier Holtz, filed an application with the
FDBF to acquire and/or maintain control of the Company, although they do
not believe that such an application is legally required. For more
information, see "Legal Proceedings" in Item 3 hereof.
(4) Includes 162,919 shares held individually, 15,187 shares held jointly with
his wife, 22,500 shares held by his wife individually (who has transferred
the voting rights of such shares to an unaffiliated third party pursuant
to an irrevocable proxy) and 421 shares over which he claims voting power.
Also includes 90,751 shares that Mr. Holtz has the right to acquire
pursuant to options (84,751 of which are currently exercisable). Mr.
Holtz, individually, and together with his mother, Fana Holtz, and his
brother, Daniel Holtz, filed an application with the FDBF to acquire
and/or maintain control of the Company, although they do not believe that
such an application is legally required. For more information, see "Legal
Proceedings" in Item 3 hereof.
(5) Represents shares that the individual has the right to acquire pursuant to
currently exercisable options.
(6) Includes 66,666 shares held individually and 28,750 shares that Mr. Platt
has the right to acquire pursuant to currently exercisable options.
(7) Includes 27,386 shares held individually, 5,400 shares held by a
partnership, of which Mr. Porter is a general partner, and 25,000 shares
that Mr. Porter has the right to acquire pursuant to currently exercisable
options.
(8) Includes 516,277 shares held individually, 13 shares held as custodian for
Mr. Simkins' son under the Florida Gifts to Minors Act, 170,109 shares
held by a trust for the benefit of Mr. Simkins' children, 3,000 shares
held by a partnership, of which Mr. Simkins and his children have sole
ownership interest, and 28,000 shares he has the right to acquire pursuant
to currently exercisable options.
(9) Includes 1,000 shares held individually and 5,000 shares that Mr. Stern
has the right to acquire pursuant to currently exercisable options.
(10) Includes 11,250 shares held individually and 59,501 shares that Mr. Kiefer
has the right to acquire pursuant to currently exercisable options.
(11) Includes 11,535 shares held individually and 28,000 shares that Dr. Brown
has the right to acquire pursuant to currently exercisable options.
(12) Includes 46,600 share held jointly by Mr. Flood and his wife and 79,502
shares that he has the right to acquire pursuant to options (73,502 of
which are currently exercisable).
(13) Includes 35,501 shares that Mr. Kish has the right to acquire pursuant to
options (30,501 of which are currently exercisable).
(14) The total reflects (i) shares held by directors and executive officers of
Bancorp and Capital Bank and (ii) shares under option to such directors
and executive officers.
(15) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 14, 1997 and includes
presently exercisable options held by Abel Holtz to acquire 11,184 shares.
Mr. Holtz has advised the Company that he has entered into an irrevocable
proxy with respect to such shares which grants the sole right and power to
vote such shares to a unaffiliated third party. For more information
regarding the irrevocable proxy, see footnote 17 below. In addition, he
disclaims beneficial ownership as to any shares held by his wife, Fana
Holtz, or his sons, Daniel Holtz and Javier Holtz.
(16) This information was obtained from a Schedule 13G filed with the
Securities and Exchange Commission on February 5, 1997.
(17) This information was obtained from a schedule 13D filed with the
Securities and Exchange Commission on February 19, 1997. Pursuant to an
irrevocable proxy dated December 24, 1996, Mr. Gordich was granted the
sole right and power to vote 665,893 shares of Common Stock beneficially
owned by Abel Holtz. Pursuant to such proxy, Mr. Gordich is required to
vote such shares proportionately with all other outstanding shares of
Common Stock entitled to vote on any matter brought before Bancorp's
shareholders.
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<PAGE> 101
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Capital Bank has entered into a consulting agreement with Alex Halberstein,
who is a former director and officer of Bancorp and the Bank and who is
currently a principal shareholder of Bancorp. See "Consulting Agreements"
within Item 11, Executive Compensation.
In addition, Bancorp has executed a promissory note payable to a corporation
affiliated with Alex Halberstein. At December 31, 1996, $1,320,000 was
outstanding pursuant to such loan. Interest at the prime rate is payable
monthly, with principal payments in the amount of $330,000 payable annually
until May 2000. In February 1997, such corporation also purchased approximately
$400,000 in loans from Capital Bank. All such transactions were made
substantially on the same terms as those prevailing at the time for comparable
transactions with other persons.
Capital Bank leases property for its North Miami Beach branch office from a
partnership composed of Messrs. Abel Holtz, Leonard Wien and Nathan Esformes,
all of whom are former Directors of Bancorp, Stanley Worton and Raymond
Clark, former Directors of Capital Bank, Simon Portnoy, a former Director and
officer of Bancorp and Capital Bank, and David Promoff, an officer of
Capital Bank. Abel Holtz serves as Trustee for the Partnership. During 1996,
payments to Mr. Holtz as Trustee for the Partnership pursuant to this lease
totaled approximately $163,000.
Both Capital Bank and Bancorp believe the terms of all transactions
discussed above to be fair, reasonable, and similar to those available from
unaffiliated parties.
See "Compensation Committee Interlocks and Insider Participation" in Item 11
hereof for additional information regarding transactions with certain directors
of Bancorp and Capital Bank.
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<PAGE> 102
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) The following documents are filed as part of this report:
(1) Financial statements.
The following financial statements of the Company and its subsidiaries
and the independent certified public accountant's report thereon
appear in Item 8 hereof.
Report of Independent Certified Public Accountants
Statements of Consolidated Financial Condition as of December 31,
1996 and 1995
Statements of Consolidated Income for the years ended December 31,
1996, 1995 and 1994
Statements of Consolidated Cash Flows for the years ended December
31, 1996, 1995 and 1994
Statements of Consolidated Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their filing
are not applicable or because the required information is provided in
the Consolidated Financial Statements, including the Notes thereto.
(3) Exhibits.*
(3.1) Articles of Incorporation of the Company, as amended (Exhibit 3.1
to the Company's Registration Statement [Registration No. 0-26080] on Form 8-A
as filed with the Securities and Exchange Commission on July 17, 1995).
(3.2) Amended and Restated Bylaws of the Company (Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
(3.3) Amendment to the Bylaws (Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
(9.1) Shareholders Agreement dated March 5, 1980 by and between Stanley
Worton and Abel Holtz (Exhibit 9.15 to the Company's Registration Statement on
Form S-14 [Registration No. 2-77167] as filed with the Securities and Exchange
Commission on June 21, 1982 (the "Form S-14").
(9.2) Shareholders Agreement dated August 8, 1980 by and between Irving
Pollack and Abel Holtz (Exhibit 9.16 to the Form S-14).
(9.3) Shareholders Agreement dated March 5, 1980 by and between Kenneth
Keusch and Abel Holtz (Exhibit 9.17 to the Form S-14).
(9.4) Shareholders Agreement dated March 5, 1990 by and between Equipa
Lux. C.A. and Abel Holtz (Exhibit 9.18 to the Form S-14).
(9.5) Shareholders Agreement dated May 9, 1980 by and between Alex
Halberstein and Abel Holtz (Exhibit 9.19 to the Form S-14).
(10.1) 1992 Stock Option Plan (Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).**
(10.2) Amendment to the 1992 Stock Option Plan (Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).**
(10.3) Capital Bancorp Employees' Pension Plan, as amended (Exhibit 28
to the Company's Annual Report on Form 10-K for the year ended December 31, 1994
[the "1994 10-K"]).**
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<PAGE> 103
(10.4) Capital Bancorp Employees' Pension Trust Agreement, as amended
(Exhibit 28.2 to the 1994 10-K).**
(10.5) Capital Bancorp and Subsidiaries 401(k) Retirement Savings Plan
(Exhibit 28.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).**
(10.6) Consulting Agreement dated May 26, 1993 by and between Alex
Halberstein and Capital Bank (Exhibit 19.3 to the 1994 10-K).**
(10.7) Employment Agreement dated January 1, 1993 by and between John
W. Kiefer and Capital Factors, Inc. (Exhibit 19.4 to the 1994 10-K).**
(10.8) Consulting Agreement dated October 7, 1994 by and between Abel
Holtz and Capital Bank (Exhibit 28.6 to the 1994 10-K).**
(10.9) License and Service Agreement dated September 30, 1994 by and
between FiServ, Inc. and Capital Bank (Exhibit 10.29 to the 1994 10-K).
(10.10) Tax Allocation and Indemnity Agreement.
(10.11) Agreement and Plan of Merger between Capital Bank and Peoples
First National Bank (Exhibit 28.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991).
(10.12) Purchase and Assumption Agreement dated January 26, 1990 by and
between Capital Bank and the Federal Deposit Insurance Corporation re:
Creditbank (Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990).
(10.13) Amendment to 1992 Stock Option Plan (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 [the
"June 1996 10-Q"]).**
(10.14) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Daniel M. Holtz (Exhibit 10.2 to the June 1996 10-Q).**
(10.15) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Thomas J. Flood (Exhibit 10.3 to the June 1996 10-Q).**
(10.16) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Timothy E. Kish (Exhibit 10.4 to the June 1996 10-Q).**
(10.17) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Javier J. Holtz (Exhibit 10.5 to the June 1996 10-Q).**
(10.18) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Lucious T. Harris (Exhibit 10.6 to the June 1996 10-Q).**
(10.19) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and David Konfino (Exhibit 10.7 to the June 1996 10-Q).**
(10.20) Employment Agreement dated as of January 1, 1996 by and between
Capital Bank and Charles R. Boyce (Exhibit 10.8 to the June 1996 10-Q).**
(10.21) Employment Agreement dated as of January 1, 1996 by and between
Capital Factors Holding, Inc., Capital Factors, Inc. and John W. Kiefer (Exhibit
10.9 to the June 1996 10-Q).**
(10.22) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Factors Holding, Inc., Capital Factors and John W.
Kiefer (Exhibit 10.10 to the June 1996 10-Q).**
(10.23) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Daniel M. Holtz.**
(10.24) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Thomas J. Flood.**
(10.25) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Timothy E. Kish.**
-103-
<PAGE> 104
(10.26) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Javier J. Holtz.**
(10.27) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Lucious T. Harris.**
(10.28) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and David Konfino.**
(10.29) Amendment No. 1 to Employment Agreement dated as of January 1,
1996 by and between Capital Bank and Charles R. Boyce.**
(10.30) Agreement by and among Capital Bank, Capital Factors Holding,
Inc. and Capital Factors, Inc.
(11.1) Statement re: computation of per share earnings.
(21.1) Subsidiaries of the Registrant.
(23.1) Consent of Deloitte & Touche, LLP.
(27.1) Financial Data Schedule. ***
- ------------------
* Exhibits followed by a parenthetical reference are incorporated herein
by reference from the document described therein.
** Exhibits 10.1 to 10.8 and 10.13 to 10.29 are management contracts or
compensatory plans or arrangements.
*** Filed electronically only.
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 1996.
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<PAGE> 105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CAPITAL BANCORP
DATE: March 27, 1997 BY: /s/ LUCIOUS T. HARRIS
---------------------------
LUCIOUS T. HARRIS, Treasurer
(Principal Financial and
Accounting Officer)
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<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/Daniel M. Holtz Chairman of the Board of March 27, 1997
- ----------------------------- Directors, President and
Daniel M. Holtz Principal Executive Officer
/s/Fana Holtz Vice Chairman of the March 27, 1997
- ----------------------------- Board of Directors
Fana Holtz
/s/Hugh F. Culverhouse, Jr. Director March 27, 1997
- -----------------------------
Hugh F. Culverhouse, Jr.
/s/Russell Galbut Director March 27, 1997
- -----------------------------
Russell Galbut
/s/Craig L. Platt Director March 27, 1997
- -----------------------------
Craig L. Platt
/s/Jeffrey H. Porter Director March 27, 1997
- -----------------------------
Jeffrey H. Porter
/s/Leon J. Simkins Director March 27, 1997
- -----------------------------
Leon J. Simkins
/s/Gerald M. Stern Director March 27, 1997
- -----------------------------
Gerald M. Stern
</TABLE>
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<PAGE> 107
CAPITAL BANCORP
FORM 10-K
Index to Exhibits*
------------------
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Page
- ---------- -------------
<S> <C> <C>
10.10 Tax Allocation and Indemnity Agreement.
10.23 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and Daniel
M. Holtz.**
10.24 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and Thomas
J. Flood.**
10.25 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and Timothy
E. Kish.**
10.26 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and
Javier J. Holtz.**
10.27 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and
Lucious T. Harris.**
10.28 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and
David Konfino.**
10.29 Amendment No. 1 to Employment Agreement dated as of
January 1, 1996 by and between Capital Bank and
Charles R. Boyce.**
10.30 Agreement by and among Capital Bank, Capital Factors
Holding, Inc. and Capital Factors, Inc.
11.1 Statement re: computation of per share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche, LLP.
27.1 Financial Data Schedule.***
</TABLE>
- ------------
* All other exhibits listed under Item 14 of Part IV of the Form 10-K are
incorporated by reference to documents previously filed, as indicated
therein.
** Exhibits 10.23 to 10.29 are management contracts or compensatory plans or
arrangements.
*** Filed electronically only.
-107-
<PAGE> 1
Exhibit 10.10
TAX ALLOCATION AND INDEMNITY AGREEMENT
Agreement dated as of July 10, 1996, by and among, on the one
hand, Parent Group, consisting of Capital Bancorp, a Florida corporation
("Parent"), Capital Bank and the other direct and indirect wholly owned
subsidiaries of Parent other than Capital Factors Holding, Inc., a Florida
corporation ("Factors Holding"), and its direct and indirect wholly owned
subsidiaries ("Factors Group"), and, on the other hand, Factors Group.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group
(the "Affiliated Group") as defined in section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, an affiliated group as defined in Code section
1504(a) of which Parent is the common parent has filed consolidated Federal
income tax returns for prior taxable years, and the Affiliated Group will be
required to file a consolidated Federal income tax return for its taxable year
ending December 31, 1995 and for subsequent taxable years; and
WHEREAS, prior to July 10, 1996, Factors Holding was an
indirect wholly-owned subsidiary of Parent but as of that date acquired new
shareholders unrelated to members of the Affiliated Group; and
WHEREAS, it is the intent of the parties hereto that an
agreement be entered into (i) to allocate the consolidated Federal income tax
liability of the Affiliated Group between the Parent Group and the Factors
Group pursuant to a method specified in regulations of the Treasury Department
that would impose on Parent Group and Factors Group, for the period beginning
January 1, 1995 through December 31, 1995 and for subsequent periods, liability
for an amount that approximates the liability that Parent Group and Factors
Group each would incur if they filed Federal income tax returns as separate
affiliated groups as defined in Code section 1504(a) and (ii) to provide that
Parent Group and Factors Group each shall bear its appropriate portion of the
liability of the Affiliated Group for consolidated Federal income tax in
respect of prior periods.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto agree as follows:
1. FILING OF CONSOLIDATED RETURNS. A consolidated
Federal income tax return shall be filed by Parent for the taxable year ending
December 31, 1995, and for each subsequent taxable period in respect of which
this Agreement is in effect and for which the Affiliated Group is required or
permitted to file a consolidated Federal income tax return.
<PAGE> 2
2. CURRENT AND FUTURE TAXABLE PERIODS. For the taxable
year of the Affiliated Group ending December 31, 1995 and for each taxable
period thereafter, the Affiliated Group shall be divided into two separate
groups, one consisting of Parent Group and the other consisting of Factors
Group. The consolidated Federal income tax liability of the Affiliated Group
shall be allocated between the two groups in accordance with the method set
forth in Treasury regulation sections 1.1552-1(a)(2) and 1.1502-33(d)(3) (using
a fixed percentage of 100%) by considering each group as a separate affiliated
group, except that (i) modifications to the separate taxable income will be
made in accordance with Treasury regulation section 1.1552-1(a)(2)(ii)(a)
through (i) in the same manner as if all corporations were members of a single
affiliated group, (ii) (a) carryforwards of losses and credits shall not be
taken into account to the extent those items are deemed absorbed in allocating
the tax liability of the Affiliated Group for prior taxable years, and (b)
carrybacks of losses and credits shall be taken into account only to the extent
those items are deemed absorbed in allocating the tax liability of the
Affiliated Group for the taxable year. The corporate surtax exemption shall be
allocated equally among all members of the Affiliated Group. Any liability of
the Affiliated Group for alternative minimum tax, environmental tax or any
other Federal income tax imposed on the Affiliated Group on a consolidated
basis by any section of the Code other than Code section 11 shall be allocated
in accordance with any reasonable method that is consistent with the principles
of this Agreement and the provisions of any governing Treasury regulations or
other administrative pronouncements of the Internal Revenue Service. In no
event shall the Factors Group pay more income tax in any period of one or more
taxable years than the Factors Group would have paid for the same period if it
had filed a separate consolidated Federal income tax return, and any taxes not
paid by reason of this limitation shall be paid by Parent Group.
3. PAYMENTS. Factors Group shall pay to Parent
installments of estimated tax, computed pursuant to the principles set forth in
section 2 above, no later than ten days after the due dates for payments of
estimated tax by the Affiliated Group. Any payments of estimated tax by
Factors Group to Parent shall be taken into account in determining the payment
due from Factors Group pursuant to section 2, and any overpayment of estimated
tax shall be refunded to Factors Group. A refund or payment of tax,
calculated on the basis of the amount of tax payable for the taxable year as
calculated by Parent as of the due date (without regard to extensions) for the
Federal income tax return of the Affiliated Group, shall be paid within ten
days of that due date, and any adjustment to the amount of refund or payment of
tax, calculated on the basis of the amount of tax payable for that taxable year
as shown on the Federal income tax return of the Affiliated Group as of the due
date (with regard to extensions), shall be paid within ten days of that due
date.
4. PRIOR TAXABLE PERIODS. For the taxable year of the
Affiliated Group ending December 31, 1994 and for each taxable period prior
thereto to which the Tax Allocation Agreement of the Affiliated Group made
November 14, 1983 (the "Prior Agreement") applies, the Federal income tax
liability of the Affiliated Group shall be allocated among the members of the
Affiliated Group in accordance with the Prior Agreement. For purposes of other
portions of this Agreement, references to Parent Group or Factors Group shall
be treated, in respect of taxable periods to which the Prior Agreement applies,
as references to the members of the Affiliated Group that are members of Parent
Group or Factors Group.
2
<PAGE> 3
5. ADJUSTMENTS TO TAX LIABILITY. If the consolidated
Federal income tax liability of the Affiliated Group is adjusted for any
taxable period, whether by means of an amended return or claim for refund or
after an audit by the Internal Revenue Service, the Federal income tax
liability of Factors Group pursuant to section 2 or section 4 of this Agreement
shall be recomputed, if necessary, to give effect to those adjustments as if
they had been part of the original computation pursuant to section 2 or section
4. The obligation to make any payment of additional Federal income tax or the
right to receive any refund of Federal income tax shall be allocated between
Parent Group and Factors Group accordingly. Any additional tax that Factors
Group is obligated to pay shall be paid to Parent, and any refund of tax to
which Factors Group is entitled to receive shall be paid by Parent, within ten
days of, respectively, the date Factors Group receives notice from Parent or
the date Parent receives the refund from the Treasury Department.
6. APPOINTMENT OF PARENT AS AGENT. Parent shall prepare
and file the consolidated Federal income tax returns of the Affiliated Group
and any other returns, documents or statements required to be filed with the
Internal Revenue Service. In its sole discretion, Parent shall have the right
in connection with any of those returns, documents or statements to determine
(i) the manner in which the return, document or statement shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction, credit or any other item shall be reported, (ii) whether
any extension shall be requested and (iii) the elections that will be made by
the Affiliated Group or any members thereof. Each member of the Affiliated
Group shall execute and file those consents, elections, appointments, powers of
attorney and other documents that Parent determines may be necessary or
appropriate for the proper filing of those returns, documents or statements.
Each member of the Affiliated Group shall provide Parent or any other member of
the Affiliated Group any data necessary for the proper and timely filing of
returns, documents or statements and otherwise shall cooperate as necessary to
carry out the purposes of this Agreement.
7. NEW MEMBERS. If during any taxable period Parent or
any other member of the Affiliated Group acquires or organizes another
corporation that is required to be included in the consolidated Federal income
tax return of the Affiliated Group, that corporation shall join in and be bound
by this Agreement.
8. INDEMNIFICATION
a. GENERAL PRINCIPLES. It is the intent of this
Agreement that Parent Group and Factors Group each be liable for an amount in
respect of Federal income tax of the Affiliated Group as that amount is
determined pursuant to this Agreement or the Prior Agreement and that Parent
Group and Factors Group each receive its respective share, as so allocated, of
any reduction in Federal income tax liability of the Affiliated Group.
b. INDEMNIFICATION. The members of Parent
Group, jointly and severally, shall be responsible for, and shall protect,
defend, indemnify and hold harmless the members of Factors Group from, any
amount in respect of Federal income tax allocable to Parent Group pursuant
3
<PAGE> 4
to this Agreement or the Prior Agreement. The members of Factors Group,
jointly and severally, shall be responsible for, and shall protect, defend,
indemnify and hold harmless the members of Parent Group from, any amount in
respect of Federal income tax allocable to Factors Group pursuant to this
Agreement or the Prior Agreement.
9. RETENTION OF BOOKS AND RECORDS. No member of the
Affiliated Group shall destroy or permit the destruction of any books, records
or files pertaining to any other member of the Affiliated Group without first
having offered in writing to deliver those books, records and files to the
other member, and the other member shall have the right upon prior notice to
inspect and to copy the same at any time during business hours for any proper
purpose.
10. ALLOCATION OF TAX LIABILITY WITHIN GROUPS.
a. CALCULATION OF SEPARATE TAX LIABILITIES. The
tax liability allocated to Parent Group and Factors Group pursuant to section 2
shall be allocated further among the members of each of those groups in
accordance with the method set forth in Treasury regulation sections
1.1552-1(a)(2) and 1.1502-33(d)(3) (using a fixed percentage of 100%),
provided, however, that in no event shall Capital Bank pay more income tax in
any period of one or more taxable years than Capital Bank would have paid for
the same period if it had filed a separate consolidated Federal income tax
return, and any taxes not paid by reason of this limitation shall be paid by
the other members of Parent Group.
b. PAYMENTS AND ADJUSTMENTS. The provisions of
sections 3 and 5 hereof shall apply in respect of payments and adjustments of
the Federal income tax liability within Parent Group and Factors Group.
11. OTHER INCOME AND FRANCHISE TAXES. The liability of
Parent Group and of Factors Group in respect of state, local and foreign income
and franchise taxes that are computed pursuant to provisions applicable to
affiliated, combined, unitary or other groups shall be determined and paid in a
manner consistent with the provisions of this Agreement used to determine the
liability of Parent Group and of Factors Group in respect of Federal income
tax. Calculation of the separate liability of Parent Group and of Factors
Group for these other taxes shall conform to the appropriate state, local and
foreign income and franchise tax provisions governing affiliated, combined,
unitary or other groups. Notwithstanding the foregoing, (i) the credit against
Florida corporate income tax for Florida intangible tax shall not be computed
on a separate company basis to the extent a computation on that basis would
disentitle any member of the Affiliated Group to a credit that is available to
that member by reason of joining in the filing of a consolidated return of
Florida corporate income tax with any member of the Affiliated Group that is a
bank, and (ii) no member of the Affiliated Group ("First Member") shall be
required to make any payment to any other member of the Affiliated Group
("Second Member") in respect of any tax imposed by the State of California on a
unitary basis solely because the liability of the First Member for that tax is
reduced by the Second Member joining in the filing of the return when the
activities of the Second Member in California would not subject any member of
the Affiliated Group to any liability for that tax.
4
<PAGE> 5
12. ENTIRE UNDERSTANDING. This Agreement constitutes the
entire agreement of the parties concerning the subject matter hereof and,
effective as of the date hereof and for the taxable periods to which this
Agreement applies, supersedes all other agreements. This Agreement shall
allocate the tax liabilities of the Affiliated Group for the period January 1,
1995 through December 31, 1995, and all subsequent taxable years unless Parent
and Factors Holding agree to terminate this Agreement. Notwithstanding its
termination, this Agreement shall continue in effect with respect to any
payment or refunds due for all taxable periods prior to termination.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of any successor, whether by statutory
merger, acquisition of assets or otherwise, to any of the parties hereto, to
the same extent as if the successor had been an original party to the
Agreement.
14. EXPENSES. Parent Group and Factors Group each shall
bear any and all expenses that arises from its obligations under this
Agreement.
15. NOTICES. All notices and other communications
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which the
notice is received.
If to Parent:
Lucious T. Harris
Capital Bancorp
1221 Brickell Avenue
Miami, Florida 33131
If to Factors Holding:
Dennis A. McDermott
Capital Factors Holding, Inc.
1799 W. Oakland Park Blvd.
Oakland Park, Florida 33311
16. RESOLUTION OF DISPUTES. Any dispute between the
parties with respect to this Agreement shall be resolved by a public accounting
firm or a law firm reasonably satisfactory to Parent and Factors Holding or
pursuant to an alternative dispute arrangement agreed to by the parties.
5
<PAGE> 6
17. LEGAL ENFORCEABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall be ineffective
as to that jurisdiction to the extent of that prohibition or unenforceability
without invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach
of the provisions of this Agreement and agrees that the obligations of the
parties hereunder shall be specifically enforceable.
18. CONTROLLING LAW. This Agreement shall be governed by
the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the
date first written above.
Capital Bancorp
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer and Senior Vice President
Capital Bank
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Chief Financial Officer and
Executive Vice President
6
<PAGE> 7
Bay Estates, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Coral, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Holdings, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Harbor, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Personalty, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
7
<PAGE> 8
Cap Plaza, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Realty, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Cap Temp, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Capital Factors Holding, Inc.
by /s/ Dennis A. McDermott
---------------------------------------
Dennis A. McDermott
Treasurer
Capital Foreclosed Property, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
8
<PAGE> 9
Capital Trade Development Corp.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Capital Trading Group, Inc.
by /s/ Timothy E. Kish
---------------------------------------
Timothy E. Kish
Secretary
Marina Real, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Pointe Park, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Villages At Imperial Lake, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
9
<PAGE> 10
DJM Holdings & Co.
by /s/ Javier J. Holtz
---------------------------------------
Javier J. Holtz
Treasurer
Cap Properties, Inc.
by /s/ Lucious T. Harris
---------------------------------------
Lucious T. Harris
Treasurer
Capital Factors, Inc.
by /s/ Dennis A. McDermott
---------------------------------------
Dennis A. McDermott
Chief Financial Officer and
Senior Vice President
CF Funding Corp.
by /s/ Dennis A. McDermott
---------------------------------------
Dennis A. McDermott
Treasurer
CF One, Inc.
by /s/ Dennis A. McDermott
---------------------------------------
Dennis A. McDermott
Treasurer
10
<PAGE> 1
Exhibit 10.23
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Daniel M.
Holtz (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Russell Galbut
------------------------------------
Russell Galbut, Chairman
Compensation Committee
EXECUTIVE
/s/ Daniel M. Holtz
----------------------------------------
Daniel M. Holtz
<PAGE> 1
Exhibit 10.24
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Thomas J.
Flood (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ Thomas J. Flood
----------------------------------------
Thomas J. Flood
<PAGE> 1
Exhibit 10.25
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Timothy E.
Kish (the "Executive") and Capital Bank, a Florida corporation (the "Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
the Incentive Compensation Plan as in effect during such time (the
"Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ Timothy E. Kish
----------------------------------------
Timothy E. Kish
<PAGE> 1
Exhibit 10.26
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Javier J.
Holtz (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ Javier J. Holtz
----------------------------------------
Javier J. Holtz
<PAGE> 1
Exhibit 10.27
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Lucious T.
Harris (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ Lucious T. Harris
----------------------------------------
Lucious T. Harris
<PAGE> 1
Exhibit 10.28
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between David
Konfino (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ David Konfino
----------------------------------------
David Konfino
<PAGE> 1
Exhibit 10.29
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into as of this 21st day of November, 1996, by and between Charles
Boyce (the "Executive") and Capital Bank, a Florida corporation (the
"Company").
WHEREAS, the Executive and the Company desire to amend the Employment
Agreement dated as of January 1, 1996 by and between the Executive and the
Company to modify certain terms thereof (the "Agreement"); and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company to amend the Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 3.3 of the Agreement is hereby amended by deleting the
first sentence and substituting in lieu thereof as follows:
"3.3 Incentive Compensation. The Executive shall be
entitled to receive incentive compensation ("Incentive Compensation")
during each year of the Initial Term of this Agreement equal to the
amount of incentive compensation for such year determined pursuant to
such Incentive Compensation Plan as may be in effect from time to time
(the "Incentive Compensation Plan").
2. All provisions of the Agreement, except as expressly amended
by this Amendment, shall remain in full force and effect.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Amendment as of the date first above written.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
Daniel M. Holtz, Chairman of the
Board, Chief Executive Officer and
President
EXECUTIVE
/s/ Charles Boyce
----------------------------------------
Charles Boyce
<PAGE> 1
Exhibit 10.30
AGREEMENT
This Agreement is made as of the 10th day of July, 1996 by and among
CAPITAL BANK, a Florida banking corporation (the "Bank"), CAPITAL FACTORS
HOLDING, INC., a Florida corporation ("Holding"), and CAPITAL FACTORS, INC., a
Florida corporation and subsidiary of Holding ("Factors").
WHEREAS, the Bank, Holding and Factors desire to enter into this
Agreement for the purpose of providing for certain matters relating to the
relationship among the Bank, Holding and Factors.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. Restrictions Relating to Share Issuance and Acquisitions.
During the period that and so long as the Bank, presently the sole shareholder
of Holding, or such other entity or person designated in writing by the Bank or
by a previous designee of the Bank and to which or whom the Bank or such
previous designee transfers shares in Holding constituting control of Holding
within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), that is, shares having at least 80 percent of the total
combined voting power of all classes of stock entitled to vote for directors of
Holding and constituting at least 80 percent of the total number of shares of
each other class of stock of Holding, all as defined in Section 368(c) of the
Code (all such stock in the aggregate constituting "Eighty Percent Control" and
the Bank or any such designee being hereinafter referred to as an "Eighty
Percent Holder"), holds Eighty Percent Control (such period being hereinafter
referred to as the "Eighty Percent Period") and although a vote of shareholders
is not and shall not be required under applicable law or Holding's Amended and
Restated Articles of Incorporation or Factors' Amended and Restated Articles of
Incorporation (collectively, the "Articles"), for the issuance of shares of
capital stock, equity securities or any debt or other instruments that are
convertible or exchangeable into stock or any other equity security of Holding,
Factors or any subsidiary, including options or any other rights to purchase
capital stock, pursuant to any employee benefit plan or stock option plan (a
"Plan") or otherwise, that are authorized under the Articles, but unissued, or,
in many circumstances, to acquire an ownership interest in certain assets as
described below, the advance written approval of the Eighty Percent Holder
shall be required (unless waived in writing by the Eighty Percent Holder) prior
to (i) Holding taking any action, including, without limitation, the issuance
of any capital stock or other equity security or any debt or other instrument
that is convertible or exchangeable into stock or any other equity security of
Holding, including options or any other rights to purchase capital stock,
pursuant to any Plan or otherwise, that would reduce the percentage of
ownership of the Eighty Percent Holder in the capital stock of Holding so that
the Eighty Percent Holder thereafter would not own stock constituting Eighty
Percent Control (treating options or any other rights to purchase capital stock
as exercised immediately upon issuance for purposes of making this
determination) or that otherwise would reduce (or, with the taking of any
action contemplated by the instrument in question, could reduce) the Eighty
Percent Holder's ownership of Holding stock below "control" of Holding within
the meaning
<PAGE> 2
of Section 368(c) of the Code; (ii) Factors issuing any capital stock, equity
security or any debt or other instrument convertible or exchangeable into its
stock or other equity security or any option or other right to purchase its
stock or other equity security or any right to purchase the same; (iii) Holding
or Factors acquiring or causing any subsidiary to acquire any direct or
indirect ownership interest in any asset that does not constitute part of an
active trade or business within the meaning of Section 355(b) of the Code;
provided, however, that Holding or Factors or any subsidiary of either may
acquire any asset that is similar in nature to the assets it holds on July 1,
1996, so long as that acquisition would not cause Holding or Factors or any
subsidiary of either, as the case may be, not to be engaged in an active trade
or business within the meaning of Section 355(b) of the Code; or (iv) Holding
or Factors taking any action to cause the issuance of capital stock, equity
security or any debt or other instrument that is convertible or exchangeable
into stock or any other equity security by or of any subsidiary, and neither
Holding nor Factors shall take any such action above without the prior written
approval of the Eighty Percent Holder during the Eighty Percent Period. Any
attempt to take such action without the prior written approval of the Eighty
Percent Holder during the Eighty Percent Period shall be null and void and any
purported issuance of capital stock or an equity security or any convertible or
exchangeable debt or other instrument or any right to purchase the same in
Holding, Factors or any subsidiary or any acquisition in violation of this
provision shall not terminate the Eighty Percent Period.
2. Restrictions Relating to Boards of Directors and Bylaws.
During the Eighty Percent Period, neither Holding nor Factors shall take any
action to (i) alter the composition of the board of directors of Factors or the
board of directors of any subsidiary or to remove or replace any director then
serving on the board of directors of Factors or the board of directors of any
subsidiary, (ii) change the number of its directors or the number of directors
of any subsidiary, (iii) fill any vacancy in its board of directors or in the
board of directors of any subsidiary or (iv) alter, amend or repeal, in whole
or in part, its Bylaws, or adopt new Bylaws, without the advance written
approval of the Eighty Percent Holder (unless such requirement is waived in
writing by the Eighty Percent Holder).
3. Prior Approval is not Required for Shareholder Vote. The
obligations of Holding and Factors contained in this Agreement to obtain the
advance written approval of the Eighty Percent Holder shall continue in effect
during the Eighty Percent Period, notwithstanding that neither Holding nor
Factors is required under applicable law or its Articles to have a vote of
shareholders to take any such actions, except possibly with respect to certain
acquisitions, and that neither Holding nor Factors will have a vote of
shareholders to take any such actions, except possibly with respect to certain
acquisitions. The consent or lack of consent of the Eighty Percent Holder with
respect to any matter is not a vote on such matter by the Eighty Percent
Holder.
4. Preemptive Rights. During the Eighty Percent Period, the
Eighty Percent Holder shall have preemptive rights in Holding as set forth
below (the "Preemptive Rights"). Pursuant to the Preemptive Rights, in the
event that Holding proposes to issue and sell additional shares of any capital
stock or equity security, including authorized but unissued shares, to any
person or entity other than the Eighty Percent Holder, including without
limitation (i) pursuant to the exercise of options granted under any Plan, (ii)
to satisfy conversion rights, (iii) as compensation or (iv) otherwise than for
money; then the Eighty Percent Holder shall have the right, for a period of
sixty days from the date of receipt of written notice of any such proposed
issuance or sale, and, in all events, prior to any such
<PAGE> 3
issuance or sale by Holding, to purchase, at its discretion, up to a percentage
of such capital stock or equity securities equal to its proportionate interest
in Holding prior to any such proposed issuance or sale of such capital stock or
equity security to another entity or person (the "Pro Rata Amount"), at the
proposed issuance price, which right shall be exercisable by written notice to
Holding given within sixty days after receipt by the Eighty Percent Holder of
the written notice of such proposed issuance or sale. If the Eighty Percent
Holder shall fail to respond to Holding within the sixty-day notice period,
such failure shall be regarded as a rejection of its right to participate in
the purchase of such capital stock or equity securities. To the extent that
the Eighty Percent Holder does not elect to purchase its Pro Rata Amount,
Holding may issue all (but not less than all) of the remainder of such capital
stock or equity securities being offered for issuance or sale which the Eighty
Percent Holder has elected not to purchase to any person or entity other than
the Eighty Percent Holder, at the price specified by Holding in its notice to
the Eighty Percent Holder, provided that such issuance is bona fide and made
within 90 days of the date of such notice.
The closing of any purchase under this Section 4 shall be at a date
and time selected by the Eighty Percent Holder within ten business days after
the Eighty Percent Holder is notified of the closing by Holding, or at such
other time and place as the parties to the transaction may agree upon.
Notwithstanding anything contained in this Section 4, the provisions
of Section 1 remain in full force and effect and supersede the provisions of
this Section 4, and no issuance or sale may be made to any party pursuant to
this Section 4 in violation of Section 1.
5. Actions and Obligations of Bank. Holding and Factors are
entering into this Agreement because Bank has agreed to pursue an initial
public offering for Holding. Bank agrees to exercise its rights in a
reasonably prompt manner, subject to its use of diligence reasonably deemed
necessary by the Bank.
6. Injunctive Relief. Each of Holding and Factors agrees that
any violation of the foregoing covenants will cause irreparable injury to the
Bank, that the remedies at law for any such violation will be inadequate to the
Bank, and that the Bank shall, in addition to and not in limitation of any
other rights and/or remedies available at law or in equity, be entitled to
temporary and permanent injunctive relief and specific performance without the
necessity of proving actual damage.
7. Severability. Each of the covenants herein is independent and
severable. Each covenant shall remain in full force and effect regardless of
the enforceability of any other covenant herein. If it shall be determined at
any time by a court of competent jurisdiction that any provision of this
Agreement or any portion thereof is unenforceable, then such portions as shall
be determined to be unreasonably restrictive or unenforceable shall thereupon
be deemed amended as to make such restrictions reasonable in the determination
of such court and the provisions, as amended, shall be enforceable between the
parties to the same extent as if such amendment had been made prior to the date
of any alleged breach of such provision.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
<PAGE> 4
9. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements,
understandings, negotiations and discussions, both written and oral, between
the parties hereto with respect to the subject matter hereof. This Agreement
may not be amended or modified in any way except by a written instrument
executed by all of the parties hereto.
10. Benefits; Binding Effect. This Agreement shall be for the
benefit of and binding upon the parties hereto, their respective successors and
assigns. Nothing in this Agreement shall bind any subsidiary of Holding or
Factors or restrict any such subsidiary from taking any action such subsidiary
or its board of directors is otherwise entitled to take without the consent or
approval of Holding or Factors, as the case may be, in its capacity as a
shareholder of such subsidiary.
IN WITNESS WHEREOF, the undersigned have hereunto set hand and seal as
of the date first written above.
CAPITAL BANK
By: /s/ Daniel M. Holtz
------------------------------------
CAPITAL FACTORS HOLDING, INC.
By: /s/ John W. Kiefer
------------------------------------
CAPITAL FACTORS, INC.
By: /s/ John W. Kiefer
------------------------------------
<PAGE> 1
Exhibit 11.1
CAPITAL BANCORP AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary:
Average number of common
shares outstanding 8,069,820 7,194,216 6,955,506
Dilutive effect of stock
options 26,459 415,523 254,952
----------- ----------- -----------
Total common and common
equivalent shares 8,096,279 7,609,739 7,210,458
=========== =========== ===========
Fully-diluted:
Average number of common
shares outstanding 8,069,820 7,194,216 6,955,506
Dilutive effect of stock
options 26,459 575,776 391,240
----------- ----------- -----------
Total common and common
equivalent shares 8,096,279 7,769,992 7,346,746
=========== =========== ===========
Net income $20,204,000 $17,101,000 $13,204,000
=========== =========== ===========
Primary:
Income from continuing
operations $ 2.50 $ 2.25 $ 1.83
=========== =========== ===========
Fully Diluted:
Income from continuing
operations $ 2.50 $ 2.20 $ 1.80
=========== =========== ===========
</TABLE>
Earnings per share amounts were computed based upon the average number of common
and common equivalent shares outstanding assuming proceeds from the assumed
exercise of options were used to purchase common shares outstanding, unless such
exercise is antidilutive.
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Capital Bank, incorporated in the State of Florida, doing business under
the name of Capital Bank.
2. Capital Factors Holding, Inc. (subsidiary of Capital Bank), incorporated in
the State of Florida, doing business under the name of Capital Factors
Holding, Inc.
3. Capital Factors, Inc. (subsidiary of Capital Factors Holding, Inc.),
incorporated in the State of Florida, doing business under the name of
Capital Factors, Inc. (Florida) and CB Factors, Inc. (California), and
Capital Factors Northeast, Inc. (New York).
4. CF One, Inc. (subsidiary of Capital Factors Holding, Inc.) incorporated in
the State of Delaware, doing business under the name of Capital Factors
One, Inc.
5. CF Funding Corp. (subsidiary of Capital Factors, Inc.) incorporated in the
State of Delaware doing business under the name of Capital Factors Funding
Corp.
6. Bay Estates, Inc. (subsidiary of Capital Bank), incorporated in the State
of Florida, doing business under the name of Bay Estates, Inc.
7. Cap Realty, Inc. (subsidiary of Capital Bank), incorporated in the State of
Florida, doing business under the name of Cap Realty, Inc.
8. Cap Personalty, Inc. (subsidiary of Capital Bank), incorporated in the
State of Florida, doing business under the name of Cap Personalty, Inc.
9. Cap Plaza, Inc. (subsidiary of Capital Bank), incorporated in the State of
Florida, doing business under the name of Cap Plaza, Inc.
10. Cap Properties, Inc. (subsidiary of Capital Bank), incorporated in the
State of Texas, doing business under the name of Cap Properties, Inc.
11. Capital Foreclosed Property, Inc. (subsidiary of Capital Bank),
incorporated in the State of Florida, doing business under the name of
Capital Foreclosed Property, Inc.
12. Cap Holdings, Inc. (subsidiary of Capital Bank), incorporated in the State
of Florida, doing business under the name of Cap Holdings, Inc.
13. Cap Harbor, Inc. (subsidiary of Capital Bank), incorporated in the State of
Florida, doing business under the name of Cap Harbor, Inc.
14. Cap Temp, Inc. (subsidiary of Capital Bank), incorporated in the State of
Florida, doing business under the name of Cap Temp, Inc.
15. Villages at Imperial Lakes, Inc. (subsidiary of Capital Bank), incorporated
in the State of Florida, doing business under the name of Villages of
Imperial Lakes, Inc.
16. Marina Real, Inc. (subsidiary of Villages at Imperial Lakes, Inc.)
incorporated in the State of Florida, doing business under the name of
Marina Real, Inc.
17. DJM Holding, Inc. (subsidiary of Capital Bank) incorporated in the State of
Florida, doing business under the name of DJM Holdings, Inc.
18. Pointe Park, Inc. (subsidiary of Capital Bank) incorporated in the State of
Florida, doing business under the name of Pointe Park, Inc.
19. Capital Trade Development Corp. (subsidiary of Capital Bank) incorporated
in the State of Florida, doing business under the name of Capital Trade
Development Corp.
20. Cap Coral, Inc. (subsidiary of Capital Bank) incorporated in the State of
Florida, doing business under the name of Cap Coral, Inc.
21. Capital Trading Group, Inc. (subsidiary of Capital Bancorp) incorporated in
the State of Florida, doing business as Capital Trading Group, Inc.
22. Capital Tempfunds, Inc. (subsidiary of Capital Factors, Inc.) incorporated
in the State of North Carolina, doing business as Tempfunds America.
<PAGE> 1
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statement No.
33-91792 of Capital Bancorp on Form S-8 of our report dated February 28, 1997
appearing in this Annual Report on Form 10-K for the year ended December 31,
1996.
Deloitte & Touche LLP
Miami, Florida
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 128,359
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 52,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 187,061
<INVESTMENTS-CARRYING> 31,425
<INVESTMENTS-MARKET> 31,647
<LOANS> 827,366
<ALLOWANCE> 9,333
<TOTAL-ASSETS> 1,762,898<F1>
<DEPOSITS> 1,096,825
<SHORT-TERM> 79,905
<LIABILITIES-OTHER> 236,596
<LONG-TERM> 202,220
0
0
<COMMON> 7,534
<OTHER-SE> 128,208
<TOTAL-LIABILITIES-AND-EQUITY> 1,751,288<F1>
<INTEREST-LOAN> 71,020
<INTEREST-INVEST> 14,897
<INTEREST-OTHER> 33,978
<INTEREST-TOTAL> 119,859
<INTEREST-DEPOSIT> 31,247
<INTEREST-EXPENSE> 49,592
<INTEREST-INCOME-NET> 70,303
<LOAN-LOSSES> 5,275
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 79,422
<INCOME-PRETAX> 33,868
<INCOME-PRE-EXTRAORDINARY> 33,868
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,204
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
<YIELD-ACTUAL> 5.45
<LOANS-NON> 5,397
<LOANS-PAST> 264
<LOANS-TROUBLED> 8,293
<LOANS-PROBLEM> 5,532
<ALLOWANCE-OPEN> 11,789
<CHARGE-OFFS> 8,713
<RECOVERIES> 982
<ALLOWANCE-CLOSE> 9,333
<ALLOWANCE-DOMESTIC> 7,400
<ALLOWANCE-FOREIGN> 1,300
<ALLOWANCE-UNALLOCATED> 633
<FN>
<F1>Difference is minority interest of $11,610.
</FN>
</TABLE>
