<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission file no. 2-26080
CAPITAL BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2160717
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1221 Brickell Avenue, Miami, Florida 33131
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(305) 536-1500
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable.
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
---- ----
As of August 8, 1997, there were 7,595,323 shares of the registrant's Common
Stock outstanding.
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<PAGE> 2
ITEM 1. PART I. FINANCIAL INFORMATION
CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 118,019 $ 128,359
Federal funds sold and securities purchased
under agreement to resell 165,000 52,900
----------- -----------
Cash and cash equivalents 283,019 181,259
----------- -----------
Securities held to maturity (market value 6/30/97 -
$29,403, 12/31/96 - $ 31,647) 29,260 31,425
Securities available for sale (at market value) 191,886 187,061
----------- -----------
Total securities 221,146 218,486
----------- -----------
Loans 851,617 830,330
Less allowance for loan losses (10,807) (9,333)
Less unearned income (3,345) (2,964)
----------- -----------
Loans, net 837,465 818,033
----------- -----------
Accounts receivable - factoring subsidiary, net 479,702 449,528
Premises and equipment, net 31,041 29,171
Due from customers on acceptances 21,869 29,900
Other real estate 2,868 3,632
Accrued interest and other assets 33,220 32,889
----------- -----------
Total assets $ 1,910,330 $ 1,762,898
=========== ===========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits $ 305,163 $ 315,800
Savings and money market deposits 291,531 302,651
Time deposits 600,884 478,374
----------- -----------
Total deposits 1,197,578 1,096,825
----------- -----------
Funds purchased and securities
sold under agreements to repurchase 81,805 79,905
Bank acceptances outstanding 21,869 29,900
Due to clients - factoring subsidiary 176,529 191,489
Long-term debt 257,075 202,220
Other liabilities 16,502 15,207
----------- -----------
Total liabilities 1,751,358 1,615,546
----------- -----------
Minority interest in consolidated subsidiary 12,631 11,610
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,585,925 shares - 6/30/97,
7,533,726 shares - 12/31/96 7,586 7,534
Capital surplus 13,677 13,219
Retained earnings 125,991 115,827
Unrealized loss on securities available
for sale, net of applicable taxes (913) (838)
----------- -----------
Total stockholders' equity 146,341 135,742
----------- -----------
Total liabilities, minority interest
and stockholders' equity $ 1,910,330 $ 1,762,898
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 3
CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $20,161 $17,588 $39,715 $34,897
Advances-factoring clients 8,766 6,860 16,624 12,892
Securities 3,648 3,769 7,143 7,397
Federal funds sold 1,477 1,336 2,128 1,972
Other 148 127 268 467
------- ------- ------- -------
Total interest income 34,200 29,680 65,878 57,625
------- ------- ------- -------
INTEREST EXPENSE:
Savings and money market deposits 1,730 1,751 3,506 3,462
Time deposits 7,258 5,977 13,767 11,596
Short-term borrowings 951 933 1,927 1,838
Long-term debt 4,547 3,613 8,242 6,745
------- ------- ------- -------
Total interest expense 14,486 12,274 27,442 23,641
------- ------- ------- -------
Net interest income 19,714 17,406 38,436 33,984
Provision for loan losses 2,175 1,700 3,700 2,300
Provision for doubtful accounts-
factoring subsidiary 800 1,000 2,200 2,100
------- ------- ------- -------
Net interest income after provisions 16,739 14,706 32,536 29,584
------- ------- ------- -------
OTHER INCOME:
Factoring revenues 8,708 7,284 16,695 13,764
Service charges on deposits 3,650 3,166 7,142 6,128
Fees on letters of credit 1,048 1,037 2,053 2,180
Securities gains -- -- 57 --
Other operating income 1,937 1,966 3,217 3,159
------- ------- ------- -------
Total other income 15,343 13,453 29,164 25,231
------- ------- ------- -------
OTHER EXPENSES:
Salaries and employee benefits 11,697 10,003 23,252 20,029
Occupancy expense, net 1,926 2,073 3,444 4,089
Other operating expenses, net 8,111 7,481 15,671 15,014
------- ------- ------- -------
Total other expenses 21,734 19,557 42,367 39,132
------- ------- ------- -------
Minority interest in net income of
consolidated subsidiary 587 -- 1,021 --
------- ------- ------- -------
Income before income taxes 9,761 8,602 18,312 15,683
Provision for income taxes 3,520 3,437 6,884 6,116
------- ------- ------- -------
Net income $ 6,241 $ 5,165 $11,428 $ 9,567
======= ======= ======= =======
Earnings per common and common
equivalent share:
Primary $ .76 $ .64 $ 1.40 $ 1.18
======= ======= ======= =======
Fully diluted $ .75 $ .64 $ 1.38 $ 1.18
======= ======= ======= =======
Cash dividends declared per share of
common stock $ .0833 $ .0833 $ .1666 $ .1666
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,428 $ 9,567
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 3,700 2,300
Provision for doubtful accounts-factoring subsidiary 2,200 2,100
Securities gains (57) --
Depreciation and amortization 2,369 2,405
Net (loss) gain on other real estate 142 (327)
(Gain) loss on disposal of premises and equipment (4) 16
Minority interest in net income of consolidated subsidiary 1,021 --
Increase in accrued interest and other assets (288) (1,819)
Increase in other liabilities 1,290 2,703
--------- ---------
Net cash provided by operating activities 21,801 16,945
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity 2,171 6,096
Purchase of securities held to maturity -- (14,000)
Proceeds from sale of securities available for sale 7,028 --
Proceeds from maturities of securities
available for sale 15,517 58,027
Purchase of securities available for sale (27,416) (44,539)
Net increase in loans (23,241) (25,888)
Proceeds from sale of premises and equipment 14 9
Purchase of premises and equipment (4,270) (1,704)
Proceeds from sale of other real estate 750 4,364
Improvements to other real estate (19) (571)
Increase in accounts receivable-factoring
subsidiary (net of due to clients) (47,334) (49,354)
--------- ---------
Net cash used in investing activities (76,800) (67,560)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits 100,753 (4,524)
Net increase in Federal funds purchased and securities
sold under agreements to repurchase 1,900 977
Proceeds from issuance of long-term debt 55,185 29,300
Repayment of long-term debt (330) (330)
Cash dividends paid (1,259) (1,242)
Proceeds from exercise of stock options 508 148
Repurchase of Common Stock (24) --
Reissuance of cancelled Common Stock 26 --
--------- ---------
Net cash provided by financing activities 156,759 24,329
--------- ---------
Net increase (decrease) in cash and cash equivalents 101,760 (26,286)
Cash and cash equivalents at beginning of period 181,259 213,903
--------- ---------
Cash and cash equivalents at end of period $ 283,019 $ 187,617
========= =========
</TABLE>
(Continued)
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<PAGE> 5
CAPITAL BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Supplemental Disclosures
Cash paid during the period for:
Interest $ 26,795 $ 23,753
======== ========
Income taxes $ 9,580 $ 5,530
======== ========
Non-cash activities:
Increase in the unrealized loss on
securities available for sale, net of applicable
benefits in 1997 - $(43) and in 1996 - $(1,057) $ (75) $ (1,788)
======== ========
Loans and advances transferred to other real estate $ 127 $ 685
======== ========
Loans recorded in connection
with sales of other real estate $ 19 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
CAPITAL BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE 1: BASIS OF PRESENTATION
- ------------------------------
The Consolidated Statements of Condition for Capital Bancorp and its
subsidiaries (the "Company") as of June 30, 1997 and December 31, 1996, the
Consolidated Statements of Income for the three- and six-month periods ended
June 30, 1997 and 1996 and the Consolidated Statements of Cash Flows for the
six-month periods ended June 30, 1997 and 1996 included in this Form 10-Q have
been prepared by the Company in conformity with the instructions to Form 10-Q
and Article 10 of Regulation S-X and, therefore, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements are unaudited except for the
Consolidated Statement of Condition as of December 31, 1996.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 1 to the Consolidated Financial
Statements appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 as filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of Capital Bancorp
("Bancorp"), Capital Bank (the "Bank") and its subsidiaries, and Capital Factors
Holding, Inc. and its subsidiaries ("Capital Factors"). All significant
intercompany transactions and balances have been eliminated in consolidation. In
the opinion of management, the interim consolidated financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary for
a fair presentation of the information contained therein. The interim results of
operations are not necessarily indicative of the results which may be expected
for the full year.
NOTE 2: RISK ELEMENTS - LOANS AND ADVANCES
- ------------------------------------------
Foreign Ooutstandings
- ---------------------
Foreign outstandings included in the loan portfolio consisted of the following
(in thousands of dollars):
June 30, December 31,
1997 1996
-------- ------------
Performing trade credits $115,447 $141,620
Other performing loans 10,637 3,767
Non-accrual loans 96 96
-------- --------
$126,180 $145,483
======== ========
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 the Bank as offsets
to outstanding foreign loans totaled $18.2 million at June 30, 1997 compared to
$23.9 million at year end 1996. In addition to the outstanding foreign loans, at
June 30, 1997 and December 31, 1996 there were $17.2 million and $20.8 million,
respectively, due primarily from foreign customers on acceptances, offset by
$2.5 million and $2.3 million, respectively, of cash collateral maintained at
the Bank.
Cross border outstandings include loans, acceptances, acceptances purchased,
pre-export financings and other interest bearing assets. The following is a list
of cross border outstandings at June 30, 1997 and December 31, 1996 for those
countries for which the total amount of outstandings, 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 that may be netted against the outstandings, exceeded 1% of
consolidated total assets (in thousands of dollars):
June 30, December 31,
1997 1996
------- ------------
Peru $24,655 Peru $29,127
Brazil 23,740 Brazil 23,153
------- Argentina 20,243
$48,395 Guatemala 17,632
======= -------
$90,155
=======
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<PAGE> 7
At June 30, 1997, the Bank had cross border outstandings to Argentina
aggregating $18.7 million which exceeded .75%, but were less than 1% of
consolidated total assets. At December 31, 1996, the Bank had no net cross
border outstandings that exceeded .75% but were less than 1% of consolidated
total assets.
At June 30, 1997 and December 31, 1996, the Bank held debt securities totaling
$7.9 million and $7.6 million, respectively,issued by debtors located in foreign
countries.
Impaired Loans
- --------------
At June 30, 1997 and December 31, 1996, the recorded investment in certain loans
that were considered impaired under SFAS No. 114 was $15.1 million and $4.9
million, respectively, all of which were on non-accrual status at the respective
dates. Measurement for impairment of $11.3 million and $4.3 million of these
loans was based on the estimated value of collateral at June 30, 1997 and
December 31, 1996, respectively, and the remainder was measured based on the
present value of projected cash flows. These loans required a SFAS No. 114
reserve for possible credit losses of $2.8 million and $1.3 million at June 30,
1997 and December 31, 1996, respectively, which is included within the overall
allowance for loan losses. The average recorded investment in impaired loans
during the six months ended June 30, 1997 and 1996 was $6.3 million and $7.6
million, respectively.
At June 30, 1997 and December 31, 1996, the recorded investment in client
advances that were considered impaired under SFAS No. 114 was $972,000 and
$660,000, respectively, all of which were on non-accrual status at the
respective dates. Measurement for impairment was based on the estimated value of
collateral. These advances required a SFAS No. 114 reserve for possible credit
losses of $190,000 and $30,000 at June 30, 1997 and December 31, 1996,
respectively, which is included within the overall allowance for doubtful
accounts.
Non-accrual and Past Due Loans and Advances
- -------------------------------------------
Management evaluates past due and non-accrual loans and advances regularly in
connection with estimating the provisions and the allowances for loan losses and
doubtful accounts, taking into consideration the value of collateral and the
prospects for repayment of principal and collectibility of interest. Loans and
advances are classified on a non-accrual basis when management deems that
collectibility of interest is doubtful, which is after 90 days of past due
status, or at an earlier date if full collectibility is doubtful, unless the
loan or advance is well secured and in the process of collection. Charge offs to
the allowances are made when a loss is deemed probable.
At June 30, 1997 there were $346,000 of loans that were over 90 days past due
and still accruing interest, as compared to $264,000 at December 31, 1996. Loans
which are over 90 days past due and still accruing interest are in the process
of collection and are deemed to be well secured.
Following is a summary of non-accrual loans and advances (in thousands of
dollars):
June 30, December 31,
1997 1996
-------- ------------
Commercial loans $ 3,161 $ 2,874
Foreign loans 96 96
Real estate loans 11,799 1,881
Consumer loans 666 546
------- -------
Total 15,722 5,397
Advances 972 660
------- -------
Total non-accrual loans and advances $16,694 $ 6,057
======= =======
Non-accrual loans increased to $15.7 million at June 30, 1997, primarily
reflecting an increase in real estate non-accrual loans. The increase in real
estate non-accrual loans resulted primarily from the transfer of three loans
aggregating $10.4 million to non-accrual status during the second quarter of
1997. Each of these three loans is secured by a first mortgage on real estate.
Management has instituted collection procedures or workout arrangements in
connection with non-accrual loans and advances and has established allowances
for loan losses and doubtful accounts deemed adequate to absorb potential
losses, based on information currently available. Many of the factors considered
in management's determination as to the adequacy of the allowances involve a
significant degree of estimation and are subject to rapid changes that may be
unforeseen by management. Changes to these factors could result in future
adjustments to the allowances for loan losses and doubtful accounts.
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<PAGE> 8
NOTE 3: LITIGATION
- -------------------
The Company and certain of its present and former directors and officers are
defendants in two lawsuits, one of which is a shareholder derivative law suit.
Such law 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 effect
on the consolidated financial condition, results of operations or liquidity of
the Company.
In addition to these lawsuits, various legal actions and proceedings are pending
or are threatened against Bancorp, the Bank and Capital Factors, 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, to Bancorp, the Bank and/or Capital Factors 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.
NOTE 4: SUBSEQUENT EVENT
- -------------------------
On August 12, 1997, Bancorp entered into an Agreement and Plan of Merger (the
"Agreement") with Union Planters Corporation ("UPC"). Under the Agreement, each
share of common stock of Bancorp will be exchanged for .8525 shares of UPC
common stock. The Agreement is subject to due diligence, regulatory approval,
approval by Bancorp's shareholders and the satisfaction of certain normal
contractual closing conditions.
-8-
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL BANCORP AND SUBSIDIARIES
INTRODUCTION
- ------------
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., an 81%-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") are principally engaged in providing receivables-based commercial
financing and related fee-based credit, collection and management information
services through offices located in Ft. Lauderdale, Florida; New York, New York;
Los Angeles, California; Charlotte, North Carolina and a limited service office
in Atlanta, Georgia. Throughout this discussion, Bancorp and its subsidiaries
are collectively referred to as the "Company."
This Form 10-Q 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-Q that are not statements of historical fact
may be deemed to be 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 operating strategies and current litigation and regulatory matters.
On August 12, 1997, Bancorp entered into an Agreement and Plan of Merger (the
"Agreement") with Union Planters Corporation ("UPC"). Under the Agreement, each
share of common stock of Bancorp will be exchanged for .8525 shares of UPC
common stock. The Agreement is subject to due diligence, regulatory approval,
approval by Bancorp's shareholders and the satisfaction of certain normal
contractual closing conditions.
FINANCIAL CONDITION - JUNE 30, 1997 VS. DECEMBER 31, 1996
- ----------------------------------------------------------
Overview
- --------
Total consolidated assets increased $147.4 million, or 8%, during the first six
months of 1997, which included an increase of $172.9 million in interest earning
assets offset by a decrease of $25.5 million in non-interest earning assets. The
increase in total consolidated assets was comprised primarily of increases of
$101.8 million in cash and cash equivalents, $30.2 million in net accounts
receivable - factoring subsidiary and $19.4 million in net loans. Total
consolidated liabilities increased $135.8 million and included a net increase of
$168.1 million in interest bearing balances (of which $122.5 million relates to
time deposits and $54.9 million relates to long-term debt) offset by a decrease
of $32.3 million in non-interest bearing balances. Total stockholders' equity
increased $10.6 million, to $146.3 million, primarily as a result of earnings in
excess of dividends declared.
Loans
- -----
During the first six months of 1997, total loans increased $21.3 million, or 3%,
with increases primarily in real estate and commercial loans offset by a
decrease in foreign loans.
Substantially all of the Company's real estate lending is commercial in nature,
including construction financing for new residential developments and short-term
(5 to 7 years) first mortgages on income producing properties. Real estate loans
increased $33.1 million, or 12%, during the first six months of 1997 to $308.3
million, primarily as a result of increases in the Bank's mortgage loan
portfolio.
During 1997 commercial loans increased $15.6 million, or 7%. At June 30, 1997,
commercial loans totaled $238.4 million, $53.4 million of which were asset-based
loans of Capital Factors. The increase in commercial loans consisted primarily
of an increase of $17.3 million in asset-based loans at Capital Factors.
Asset-based loans are collateralized primarily by receivables owned by the
borrowers. 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.
-9-
<PAGE> 10
Foreign loans decreased $19.3 million, or 13%, to $126.2 million, primarily due
to the sale of several international loans in connection with risk management
strategies. Loans to foreign banks are derived primarily from the Company's
short-term trade finance activities in Central and South America.
Accounts Receivable - Factoring Subsidiary
- ------------------------------------------
Accounts receivable - factoring subsidiary, net, increased $30.2 million, or 7%,
to $479.7 million as a result of an overall increase in factoring volume.
Capital Factors, as well as the factoring industry, has historically experienced
and expects to continue to experience seasonal fluctuations in its factored
sales volume and factoring fees, which generally is highest during the period
from August to 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. 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 $309.0 million at June 30, 1997, compared to $263.5
million at December 31, 1996. Balances due to factoring clients for receivables
purchased were $176.5 million and $191.5 million at June 30, 1997 and December
31, 1996, respectively. Non-accrual advances were $972,000 and $660,000
at June 30, 1997 and December 31, 1996, respectively, and are considered in the
assessment of the allowance for doubtful accounts for adequacy (see "Provision
for Doubtful Accounts - Capital Factors" below).
Cash and Cash Equivalents
- -------------------------
The increase in cash and cash equivalents was composed of an increase of $112.1
million in federal funds sold and securities purchased under agreements to
resell offset by a decrease of $10.3 million in cash and due from banks. The
increase in federal funds sold and securities purchased under agreements to
resell resulted primarily from net inflows of deposits and from funds raised by
Capital Factors as a result of the issuance of Variable Funding Certificates
to outside investors in the first half of 1997.
Deposits
- --------
Total deposits were $1,197.6 million at June 30, 1997 and $1,096.8 million at
December 31, 1996. The increase in total deposits included an increase of $122.5
million in time deposits offset by decreases of $11.1 million in savings and
money market deposits and $10.6 million in non-interest bearing deposits. The
increase in time deposits results from marketing strategies during the second
quarter to increase overall deposits and liquidity as well as the acquisition of
$45.0 million of brokered deposits in April 1997 ($35 million of which was
repaid in July 1997).
The Company does not operate any foreign offices; however, as a result of the
activities of the Bank's International Division, foreign customers maintain
deposit accounts with the Bank. Deposits by foreign customers amounted to $208.1
million at June 30, 1997 and $190.7 million at December 31, 1996, representing
17% and 18% 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.
Short-Term Borrowings
- ---------------------
The Company's short-term borrowings primarily represent securities sold under
agreements to repurchase on an overnight basis involving 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. Retail
repurchase agreements increased $1.9 million to $81.8 million during the first
six months of 1997.
Long-Term Debt
- --------------
At June 30, 1997 Capital Factors had outstanding three series of Variable Rate
Asset-Backed Certificates that are fixed as to principal amount, aggregating
$175.0 million. Such certificates bear interest at LIBOR plus 1.25% (6.94% at
June 30, 1997, 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). During the second quarter Capital Factors
issued a fourth series of variable rate asset-backed securities (the "Variable
Funding Certificates"). The Variable Funding Certificates included the issuance
of $96.25 million of senior certificates, which bear interest at LIBOR plus
0.75%, and $4.75 million of senior subordinated certificates, which bear
interest at LIBOR
-10-
<PAGE> 11
plus 1.50%. Unlike the previously issued series of asset backed certificates
that were fixed as to principal amount, the Variable Funding Certificates
provide for a monthly settlement of principal, which may increase or decrease
the outstanding amount. Borrowings of up to the full $100.0 million may be made
to the extent that Capital Factors, Inc. generates additional eligible advances.
At June 30, 1997, the outstanding amount of the Variable Funding Certificates
was $43.9 million (at an average rate of 6.44% at June 30, 1997). The Variable
Funding Certificates mature in April 2002.
Capital Factors has also established a $40 million revolving credit facility
with an unaffiliated lender. Borrowings under this facility bear interest at
LIBOR plus 2.15% (7.84% at June 30, 1997) and mature in March 1999. During 1997
borrowings under this credit facility increased $11.3 million to $27.2 million
at June 30, 1997. Also, Capital Factors has privately placed a $10 million
subordinated note with an unaffiliated lender. The note bears interest at a
fixed rate of 7.95% and matures in July 2001.
CAPITAL RESOURCES
- -----------------
Stockholders' equity increased $10.6 million during the first six months of 1997
primarily as a result of net income of $11.4 million offset by dividends
declared of $1.3 million.
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 June 30, 1997 and December 31, 1996, the regulatory capital ratios of the
Company and the Bank were as follows:
<TABLE>
<CAPTION>
Minimum
Company Bank Requirement of
---------------------- ---------------------- --------------
6/30/97 12/31/96 6/30/97 12/31/96
------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Leverage ratio 8.57% 8.38% 8.19% 8.03% 3%*
Tier One ratio 10.71% 10.84% 10.22% 10.37% 4%
Total ratio 11.66% 11.75% 11.17% 11.28% 8%
</TABLE>
- --------------------
*Banking regulators expect institutions to maintain an excess of 1 to 2%
above the minimum.
In the opinion of management, these ratios are sufficient to protect depositors
and facilitate future growth. The Company's management continuously 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 the first six months of 1997 and 1996,
the Company's annualized internal capital generation ratio was 15.10% and
14.72%, respectively.
Bancorp currently pays stockholder dividends of 8.33 cents per share per
quarter. This dividend policy is dependent upon the ability of the Bank and its
subsidiaries to continue the payment of dividends to Bancorp. Unforeseen changes
in the financial condition of the Bank and its subsidiaries, or actions by
regulatory authorities, could result in changes in the dividend policy.
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
-11-
<PAGE> 12
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.
Cash and cash equivalents totaled $283.0 million and $181.3 million at June 30,
1997 and December 31, 1996, respectively. During the first six months of 1997,
the Company generated net cash flows of $156.8 million and $21.8 million from
its financing and operating activities, respectively, while using $76.8 million
in its investing activities.
The $156.8 million of net cash flows generated by the Company's financing
activities included $100.8 million from deposit growth and $55.2 million from
long-term borrowings by Capital Factors. Deposit growth resulted from marketing
strategies employed during the second quarter, as well as the acquisition of $45
million of brokered time deposits ($35 million of which was repaid in July
1997). The objective of these strategies was to increase the overall level of
liquid assets held.
During the first six months of 1997, the Company's investing activities utilized
$76.8 million of the liquidity generated from operating and financing
activities. Net new advances by Capital Factors amounted to $47.3 million, and
net new loans amounted to $23.2 million.
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 in
"Asset/Liability Management and Interest Rate Risk"). 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 June 30, 1997, the Company had outstanding
commitments to extend credit, commercial letters of credit and standby letters
of credit amounting to $249.9 million, $117.5 million and $18.6 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.
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, reduced by the value
of any associated collateral obtained. This is the maximum potential loss of
principal in the event the commitment is drawn upon and the counter-party
defaults. In addition, the measurement of the risks associated with these
financial instruments is meaningful only when all related and offsetting
transactions are considered.
Liquidity is also important for Bancorp, and the ability of Bancorp to meet debt
service requirements, pay dividends to stockholders and satisfy other liquidity
needs is primarily dependent on the Bank's ability to continue the payment of
dividends. The ability of the Bank to pay dividends is governed 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 June 30, 1997, the Bank was not subject to
any restrictions on the payment of dividends other than statutory.
For the 12 months commencing June 30, 1997, Bancorp's estimated debt service and
stockholder dividend requirements total approximately $2.9 million. At June 30,
1997, Bancorp had available cash balances of $8.6 million and management
believes liquidity at June 30, 1997 was satisfactory.
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 liquidity risk 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.
-12-
<PAGE> 13
Interest rates earned and paid on interest earning assets and interest bearing
liabilities are influenced both by 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 is contingent
upon customer demand or acceptance of the products offered by the Company. At
June 30, 1997, the Company's cumulative one-year gap (the difference between
interest earning assets and interest bearing liabilities) was positive $33.6
million, or approximately 2% of total earning assets. Management does not
believe the Company's operating results will be significantly impacted by
changes in interest rates over the next year.
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 the
first six months of 1997, the average yield on interest earning assets was
9.23%. For the first six months of 1997, the average rate paid on interest
bearing deposit liabilities was 4.33%, while the average rate paid for other
interest bearing liabilities was 6.65%. To the extent that non-deposit
liabilities grow faster than deposits, or the mix of deposits shifts to a
greater proportion of higher cost time deposits as compared to demand or savings
deposits, the Company's overall cost of funds will likely rise, contributing to
a decrease in net interest income. At this time, management does not believe
these factors will have a significant adverse impact on net interest income over
the next twelve months.
The following table provides a summary analysis of maturity and repricing
characteristics of the Company's interest earning assets and interest bearing
liabilities at June 30, 1997. For purposes of this analysis, regular passbook
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."
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 $ 24.8 $ 14.4 $ 12.8 $ 169.1 $ 221.1
Loans(1) 466.8 64.7 48.3 256.1 835.9
Other earning
assets(2) 489.6 -- -- .2 489.8
------ ------ ------ ------- -------
Total interest
earning assets 981.2 79.1 61.1 425.4 1,546.8
------ ------ ------ ------- -------
Interest bearing liabilities:
Interest bearing
deposits 497.8 114.7 146.4 133.5 892.4
Short-term borrowings 81.8 -- -- -- 81.8
Long-term debt 247.1 -- -- 10.0 257.1
------ ------ ------ ------- -------
Total interest
bearing liabilities 826.7 114.7 146.4 143.5 1,231.3
------ ------ ------ ------- -------
Gap 154.5 (35.6) (85.3) 281.9 $ 315.5
------ ------ ------ ------- =======
Cumulative Gap $154.5 $118.9 $ 33.6 $ 315.5
====== ====== ====== =======
</TABLE>
- -------------------------
(1) Excludes non-accrual loans of $15.7 million.
(2) Excludes non-accrual advances of $972 thousand.
-13-
<PAGE> 14
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND 1996
- ------------------------------------------------------------------
General
- -------
The Company recorded net income of $11.4 million for the six months ended June
30, 1997, compared to $9.6 million for the six months ended June 30, 1996. The
increase was primarily a result of an improved net interest margin and higher
factoring revenue offset by higher salaries and employee benefits and higher
provisions for credit losses. Primary earnings per share was $1.40 for the six
months ended June 30, 1997 compared to $1.18, for the same period in 1996. Fully
diluted earnings per share was $1.38 for the six months ended June 30, 1997
compared to $1.18, for the same period in 1996. For the six months ended June
30, 1997, the Company's annualized returns on average assets was 1.28% compared
to 1.22% for the same period in 1996. The annualized return on average
stockholders' equity was 16.38% in 1997 compared to 16.45% in 1996.
Lines of Business
- --------------------
Set forth below 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.
BUSINESS SEGMENT DATA
(In Thousands of Dollars)
Six Months Ended
June 30,
-----------------------------
1997 1996
---------- ----------
Net interest income and non-interest income:
Domestic banking activities $ 36,692 $ 33,979
Foreign banking activities 5,236 5,001
---------- ----------
Total banking activities 41,928 38,980
Factoring activities 25,829 20,318
Intercompany (1) (157) (83)
---------- ----------
Total $ 67,600 59,215
========== ==========
Income (loss) before income taxes:
Domestic banking activities $ 9,893 $ 11,925
Foreign banking activities 3,431 (123)
---------- ----------
Total banking activities 13,324 11,802
Factoring activities 8,936 7,343
Minority interest in factoring activities,
net of applicable taxes (1,021) --
Corporate and other (2) (2,927) (3,462)
---------- ----------
Total $ 18,312 $ 15,683
========== ==========
- -------------------------
(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.
-14-
<PAGE> 15
Net interest income derived from domestic banking activities amounted to $26.4
million and $24.8 million for the six months ended June 30, 1997 and 1996,
respectively, primarily reflecting higher levels of average interest earning
assets. Non-interest income from domestic banking activities amounted to $10.2
million and $9.1 million in 1997 and 1996, respectively. The increase in
non-interest income in 1997 compared to 1996 was primarily due to an increase in
service charges on deposits as a result of the adjustment to the pricing of some
services in the second half of 1996. Operating results from domestic activities
was also affected by higher provisions for domestic loan losses. Based on
management's assessment of the allowance for loan losses and the domestic loan
portfolio, the provision for domestic loan losses increased $4.5 million, from a
credit of $403,000 for the six months ended June 30, 1996 to a provision of $4.1
million for the comparable period of 1997. See "ASSET QUALITY REVIEW" and
"Allowance for Loan Losses" below for additional discussion.
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
totaled $3.0 million and $2.7 million in 1997 and 1996, respectively. Net
interest income increased in 1997 compared to 1996 primarily as a result of
higher levels of average earning foreign loans offset by lower average rates
earned on those loans. Non-interest income from foreign banking activities
primarily represents letter of credit fees and amounted to $2.2 million and $2.3
million in 1997 and 1996, respectively. Operating results from foreign banking
activities increased primarily as a result of lower provisions for foreign loan
losses. The provision for foreign loan losses decreased $3.1 million, from $2.7
million for the six months ended June 30, 1996 to a credit of $370,000 for the
comparable period of 1997. The 1996 provision reflects approximately $1.4
million for certain exposures in connection with several loans to a Panamanian
bank for which the Panamanian government suspended operations during the first
quarter, and $1.0 million for certain exposures in connection with several loans
to an Argentine bank. These loans were charged off in June of 1996.
The Company's factoring activities continued to grow in 1997, due primarily to
the increase in new clients. Non-interest income, which primarily represents
factoring commissions, amounted to $17.0 million and $13.9 million in 1997 and
1996, respectively, reflecting increased accounts receivable purchased from $1.2
billion in 1996 to $1.5 billion in 1997. Net interest income derived from
factoring activities amounted to $8.9 million and $6.4 million in 1997 and 1996,
respectively. Growth in average interest earning assets, primarily in advances,
due to business development gave rise to this increase. The increases in net
interest income and non-interest income were partially offset by an increase in
non-interest expenses. The increase in non-interest expenses was primarily the
result of the expansion of factoring activities.
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 $38.4 million and $34.0 million for the six months ended
June 30, 1997 and 1996, respectively. Loan fees included in net interest income
amounted to $1.2 million and $983,000 in 1997 and 1996, respectively. Net
interest income on a fully tax-equivalent basis, including loan fees, totaled
$38.7 million in 1997 compared to $34.5 million in 1996.
The following table sets forth information on yields earned and rates paid by
the Company for the six month periods ended June 30, 1997 and 1996, and should
be read in conjunction with the net interest income analysis directly following
such table. Yield 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-advances on non-accrual status have been included
in average balances for purposes of computing average yield or rate. Yields on
securities available for sale have been computed based on amortized cost.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
YIELDS EARNED AND RATES PAID
(All Dollar Amounts in Thousands)
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------
1997 1996
----------------------------- -------------------------------
Average Average
Average Yield Average Yield
Balance Interest Or Rate Balance Interest Or Rate
---------- -------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans, net of unearned income:
U.S. Borrowers $ 700,133 $ 34,287 9.88% $ 584,534 $ 28,625 9.85%
Foreign Borrowers 138,248 4,947 7.22 128,521 4,710 7.37
Tax-exempt 10,882 739 13.69 16,353 1,317 16.19
---------- --------- ----- ---------- -------- -----
Total loans 849,263 39,973 9.49 729,408 34,652 9.55
Accounts receivable
advances - factoring
subsidiary 286,074 16,624 11.72 216,595 12,892 11.97
Securities:
Securities held to maturity:
Taxable 27,080 984 7.33 24,430 1,039 8.55
Tax-exempt 2,177 116 10.80 3,093 165 10.73
Securities available for sale:
Taxable 192,845 6,084 6.36 206,837 6,252 6.08
Federal funds sold
and other interest earning
assets 89,047 2,396 5.43 92,275 2,439 5.32
---------- --------- ----- ---------- -------- -----
Total interest earning
assets 1,446,486 66,177 9.23 1,272,638 57,439 9.08
--------- --------
Less allowances for loan losses
and doubtful accounts (13,142) (14,474)
Cash and due from banks 97,814 88,992
Due from customers on
acceptances 22,780 28,868
Other real estate 3,401 5,784
Other assets 240,844 193,654
---------- ----------
Total $1,798,183 $1,575,462
========== ==========
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
YIELDS EARNED AND RATES PAID
(All Dollar Amounts in Thousands)
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------
1997 1996
----------------------------- -------------------------------
Average Average
Average Yield Average Yield
Balance Interest Or Rate Balance Interest Or Rate
---------- -------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Savings and Money Market $ 293,954 $ 3,506 2.41% $ 283,275 $ 3,462 2.46%
Time 510,961 13,767 5.43 424,737 11,596 5.49
---------- --------- ----- ---------- -------- -----
Total interest bearing
deposits 804,915 17,273 4.33 708,012 15,058 4.28
Short-term borrowings 86,675 1,927 4.48 81,293 1,838 4.55
Long-term borrowings 222,580 8,242 7.47 187,973 6,745 7.22
---------- --------- ----- ---------- -------- -----
Total interest bearing
liabilities 1,114,170 27,442 4.97 977,278 23,641 4.86
---------- --------- ----- ---------- -------- -----
Non-interest bearing
deposits 302,804 305,601
Bank acceptances outstanding 22,780 28,868
Other liabilities 205,669 146,742
Minority interest in
consolidated subsidiary 12,076 --
Stockholders' equity 140,684 116,973
---------- ----------
Total liabilities,
minority interest and
stockholders' equity $1,798,183 $1,575,462
========== ==========
Net interest earnings/
yield $ 38,735 5.40% $ 33,798 5.34%
========= ===== ======== =====
Net interest spread 4.26% 4.22%
===== =====
Utilization rate 80.44% 80.78%
===== =====
</TABLE>
-17-
<PAGE> 18
Net interest income in the first six months of 1997 increased $4.5 million over
the same period in 1996 and was comprised of an increase of $8.3 million in
interest income offset by an increase of $3.8 million in interest expense. The
increase in net interest income was due to an increase in average interest
earning assets (primarily loans and advances) to $1.4 billion in 1997 from $1.3
billion in 1996, and, to a lesser extent, an increase in the net interest margin
to 5.40% in 1997 from 5.34% in 1996. Average interest bearing liabilities
increased to $1.1 billion in 1997 from $977.3 million in 1996. The increase in
average interest bearing liabilities occurred primarily in time deposits and
long-term borrowings. Approximately 57% of the increase in interest expense was
attributable to interest expense on time deposits and is primarily the result of
an increase in average balances partially offset by lower average rates paid on
such deposits. Average time deposits increased $86.2 million, or 20%, for the
first six months of 1997 to $511.0 million and represented 63% of average
interest bearing deposits in 1997 compared to 60% in 1996. Interest expense on
long-term borrowings increased $1.5 million, or 22%, for the first six months of
1997 as compared to the same period in 1996, primarily as a result of higher
average borrowing at Capital Factors, as well as higher rates paid on long-term
debt. Average long-term borrowings increased $34.6 million, or 18%, to $222.6
million for the six months ended June 30, 1997.
See "Asset/Liability Management and Interest Rate Risk" above for a discussion
of factors that may affect net interest income.
Provision for Loan Losses
- -------------------------
For the first six months of 1997, the provision for loan losses increased $1.4
million to $3.7 million as compared to $2.3 million during the same period in
1996. The increase reflects the increase in non-accrual in the Bank's domestic
loan portfolio. The assessment of the adequacy of the provision involves a
significant degree of estimation and is subject to change. See "ASSET QUALITY
REVIEW" and "Allowance for Loan Losses" below for additional discussion.
Provision for Doubtful Accounts - Capital Factors
- -------------------------------------------------
For the first six months in 1997, the provision for doubtful accounts amounted
to $2.2 million compared to $2.1 million for the same period in 1996. For the
six months ended June 30, 1997 and 1996, net charge offs as a percentage of
accounts receivable purchased was .13% and .19%, respectively. For the same
periods, the percentage of provision for doubtful accounts to accounts
receivable purchased was .15% and .18%, 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 involves a significant degree of estimation and is subject to
change, future provisions for credit losses may be greater or less than actual
charge offs. See "ASSET QUALITY REVIEW -- Allowance for Doubtful Accounts -
Capital Factors" below for additional discussion.
Other Income
- ------------
Other income increased $3.9 million, or 16%, to $29.2 million for the six months
ended June 30, 1997 compared to the same period in 1996. The increase in other
income consisted primarily of an increase of $2.9 million in factoring revenues,
which includes factoring commissions and other factoring revenues. Factoring
revenues totaled $16.7 million or 57% of total other income for the six months
ended June 30, 1997 compared to $13.8 million or 55% of total other income for
the same period in 1996. The Company, through Capital Factors, operates
factoring offices in Fort Lauderdale, Florida, Los Angeles, California, New
York, New York, Charlotte, North Carolina, and a limited service office in
Atlanta, Georgia. Capital Factors is a specialized financial services company
principally engaged in providing receivables-based commercial financing and
related fee-based credit, collection and management information services.
Capital Factors' clients are primarily small to medium size companies in various
industries, including textile, apparel and furniture manufacturing and,
recently, entities involved in the health care and temporary employment services
industries.
Accounts receivable purchased by Capital Factors totaled $1.5 billion and $1.2
billion for the first six months of 1997 and 1996, respectively, representing an
increase of 25%. Factoring commissions increased 19% for the same periods and
totaled $13.9 million for the six months ended June 30, 1997 compared to $11.6
million for the same period in 1996. 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 .99% in 1996 to .94% in 1997. 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 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.
-18-
<PAGE> 19
Service charges on deposits totaled $7.1 million or 24% of total other income
for the first six months of 1997 compared to $6.1 million or 24% of total other
income for the same period in 1996. The increase is the result of the adjustment
to the pricing of some services during the second half of 1996.
Other Expenses
- --------------
Other expenses increased $3.2 million, or 8%, consisting primarily of an
increase of $3.2 million in salaries and employee benefits offset by a decrease
of $645,000 in net occupancy expense.
Salaries and employee benefits totaled $23.2 million in 1997 compared to $20.0
million in 1996. Approximately $2.4 million of the $3.2 million increase was at
Capital Factors due to expansion of factoring activities.
Net occupancy expense totaled $3.4 million in 1997 compared to $4.1 million in
1996. The decrease primarily reflects a decrease in rent expense resulting from
the renegotiation of the operating lease for the Company's main office.
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 the six months ended
June 30, 1997 aggregated 36% of pre-tax income, after considering effect of
minority interest in net income of consolidated subsidiary, compared to 39% for
the same period in 1996.
-19-
<PAGE> 20
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- -----------------------------------------------------------------
General
- -------
The Company recorded net income of $6.2 million for the three months ended June
30, 1997, compared to $5.2 million for the same period in 1996. Primary earnings
per share was $.76 and $.64 at June 30, 1997 and 1996, respectively. Fully
diluted earnings per share was $.75 and $.64 at the respective dates. The
annualized return on average assets was 1.36% for the three months ended June
30, 1997, compared to 1.28% for the three months ended June 30, 1996. The
annualized return on average stockholders' equity was 17.49% for the three
months ended June 30, 1997 compared to 17.55% for the same period in 1996. The
increase in net income was primarily a result of an improved net interest margin
and higher factoring revenues offset by higher salaries and employee benefits.
Lines of Business
- -----------------
Set forth below 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.
BUSINESS SEGMENT DATA
(In Thousands of Dollars)
Three Months Ended
June 30,
------------------------
1997 1996
---------- ----------
Net interest income and non-interest income:
Domestic banking activities $ 18,825 $ 17,691
Foreign banking activities 2,701 2,488
---------- ----------
Total banking activities 21,526 20,179
Factoring activities 13,615 10,747
Intercompany (1) (84) (67)
---------- ----------
Total $ 35,057 $ 30,859
========== ==========
Income (loss) before income taxes:
Domestic banking activities $ 4,925 $ 6,241
Foreign banking activities 1,788 (145)
---------- ----------
Total banking activities 6,713 6,096
Factoring activities 5,136 4,214
Minority interest in factoring activities,
net of applicable taxes (587) --
Corporate and other (2) (1,501) (1,708)
---------- ----------
Total $ 9,761 $ 8,602
========== ==========
- ------------------------------------
(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.
-20-
<PAGE> 21
Net interest income derived from domestic banking activities amounted to $13.3
million and $12.6 million for the three months ended June 30, 1997 and 1996,
respectively, primarily reflecting higher levels of average interest earning
assets. Non-interest income from domestic banking activities amounted to $5.4
million and $5.1 million in 1997 and 1996, respectively. The increase in
non-interest income in 1997 compared to 1996 was primarily due to an increase in
service charges on deposits resulting from the adjustment to pricing of some
services in the second half of 1996. In the second quarter of 1996, non-interest
income included a $663,000 gain on the sale of drainage rights associated with
other real estate property. Operating results from domestic activities was also
effected by higher provisions for loan losses. Based on management's assessment
of the allowance for loan losses and the domestic loan portfolio, the provision
for domestic loan losses increased $2.2 million to $2.3 million for the second
quarter of 1997 compared to $197,000 for the second quarter of 1996.
The increase in operating results for the Bank's foreign activities was
primarily the result of lower provisions for foreign loan losses which amounted
to a credit of $174,000, compared to a provision of $1.5 million for the same
period of 1996. During the second quarter of 1996, higher provisions were
recorded to the allowance for loan losses on certain Argentine and Panamanian
loans. See "Allowance for Loan Losses" below for additional discussion.
The increase in operating results from factoring activities results from higher
non-interest income and net interest income partially offset by higher
non-interest expenses. Non- interest income, which primarily represents
factoring commissions, amounted to $8.8 million and $7.4 million in 1997 and
1996, respectively, reflecting increased accounts receivable purchased from
$614.6 million for the second quarter of 1996 to $746.2 million for the same
period of 1997. Net interest income derived from factoring activities increased
primarily due to higher levels of average earning assets. The increase in
non-interest expenses was primarily the result of the expansion of factoring
activities.
Net Interest Income
- -------------------
Net interest income for the three months ended June 30, 1997 increased $2.3
million over the comparable period in 1996, and consisted of an increase of $4.5
million in interest income offset by an increase of $2.2 million in interest
expense. The increase in interest income primarily consisted of increases of
$2.6 million in interest and fees on loans and $1.9 million in interest on
advances to factoring clients. The increase in interest and fees on loans
resulted from higher average loans of approximately $854.5 million for the
second quarter of 1997 compared to $731.9 million for the same period in 1996.
Interest on advances to factoring clients increased primarily as a result of
higher advances against factored receivables. Interest expense was higher
primarily due to higher average interest bearing liabilities. The increase in
average interest bearing liabilities occurred primarily in time deposits and
borrowings at Capital Factors. The net interest margin was 5.32 % for the three
months ended June 30, 1997 and 1996.
Provisions for Credit Losses
- ----------------------------
For the three months ended June 30, 1997, the provision for loan losses amounted
to $2.2 million compared to $1.7 million for the same period in 1996. For the
three months ended June 30, 1997, the provision for doubtful accounts -
factoring subsidiary amounted to $800,000 compared to $1.0 million for the same
period in 1996. The provisions reflect management's judgment as to the amount
deemed adequate to absorb potential loan and receivable losses in the respective
portfolios after evaluating the portfolios, current economic conditions, changes
in the nature and volume of the portfolios, past loss experience and other
pertinent factors.
Other Income and Expense
- ------------------------
Other income increased $1.9 million, or 14% for the three months ended June 30,
1997 compared to the same period in 1996. The increase in other income primarily
consisted of increases of $1.4 million in factoring revenues and $484,000 in
service charges on deposits. Factoring revenues increased due to expansion of
factoring activities. The increase in service charges on deposits is the result
of the adjustment to the pricing of some services during the second half of
1996.
In the second quarter of 1996, other operating income included a $663,000 gain
on the sale of drainage rights associated with other real estate property.
-21-
<PAGE> 22
Other expenses increased $2.2 million, or 11%, consisting primarily of increases
of $1.7 million in salaries and employee benefits and $630,000 in other
operating expenses. The increase in salaries and employee benefits primarily
reflects increases at Capital Factors due to expansion of factoring activities.
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," is effective for financial statements issued for periods ending after
December 15, 1997. This statement requires a dual presentation of basic and
diluted earnings per share on the face of the income statement. Adoption of
this statement is not expected to have a material adverse impact on the
Company's consolidated financial position or results of operations.
SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Adoption of this statement is not
expected to have a material adverse impact on the Company's consolidated
financial position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. This statement establishes standards for the way that public
companies report selected information about operating segments. Adoption of
this statement is not expected to have a material adverse impact on the
Company's consolidated financial position or results of operations.
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.
-22-
<PAGE> 23
ASSET QUALITY REVIEW
- --------------------
The following table summarizes the Company's non-accrual loans and advances,
past due loans, other potential problem loans and restructured loans and assets
as of the dates indicated (in thousands of dollars):
June 30, December 31,
1997 1996
-------- ------------
Non-accrual
loans:
Domestic $ 15,626 $ 5,301
Foreign 96 96
90 days past due
or more:
Domestic 346 264
Foreign -- --
-------- --------
Sub total 16,068 5,661
Non-accrual advances 972 660
-------- --------
Total $ 17,040 $ 6,321
======== ========
Other potential
problem loans $ 2,023 $ 5,532
======== ========
Restructured
loans (1) $ 8,228 $ 8,293
======== ========
Restructured
assets (2) $ 3,878 $ 3,593
======== ========
- -------------------------
(1) Represents troubled debt restructurings as defined by Statement of
Financial Accounting Standards No. 15. These loans were in compliance
with terms at June 30, 1997.
(2) Represents securities available for sale (at market value) received in
connection with restructured foreign loans. These bonds were in
compliance with terms at June 30, 1997.
Domestic non-accrual loans aggregated $15.6 million at June 30, 1997, compared
to $5.3 million at year end 1996. Domestic non-accrual loans aggregated 2.2% and
.9% of total domestic loans at June 30, 1997 and December 31, 1996,
respectively. The increase in domestic non-accrual loans resulted primarily from
the transfer of three real estate loans, which totaled $10.4 million, from
accrual status to non-accrual status during the second quarter of 1997. Included
were loans for $2.8 million secured by rental apartments, $3.5 million secured
by a townhouse project undergoing active development and construction, and $4.1
million secured by land. These three loans do not present any common
circumstances which causes management to believe they represent broader trends
in the loan portfolio. Each of these three loans is secured by first mortgages
on real property and, based on information currently available, losses, if any,
associated with the final resolution of these loans are not expected to be
material to consolidated operating results.
Foreign non-accrual loans aggregated $96,000 at June 30, 1997 and December 31,
1996 and represented .1% of total foreign loans at both dates. See "Allowance
for Loan Losses" below for additional discussion.
Impaired loans aggregated $15.1 million and $4.9 million at June 30, 1997 and
December 31, 1996, respectively. All impaired loans at June 30, 1997 and
December 31, 1996 were on non-accrual status. See "Allowance for Loan Losses"
below for additional discussion.
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 underlying receivables or collateral. Non-accrual advances amounted
to $972,000 at June 30, 1997, compared to $660,000 at December 31, 1996. The
increase in non-accrual advances is primarily the result of the transfer of
advances with two clients to non-accrual status offset by the payoff of advances
with one client previously on non-accrual status. See "RESULTS OF OPERATIONS --
Provision for Doubtful Accounts - Capital Factors" above and "Allowance for
Doubtful Accounts - Capital Factors" below for additional information.
-23-
<PAGE> 24
Other potential problem loans are loans that management has identified 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. All such loans at June 30, 1997 and December 31, 1996 were with domestic
borrowers. Other potential problem loans at June 30, 1997 totaled $2.0 million,
and primarily consisted of commercial loans aggregating $1.9 million. At
December 31, 1996 other potential problem loans totaled $5.5 million, and
primarily consisted of real estate loans of $2.8 million and commercial loans
totaling $2.4 million. The decrease in other potential problem loans is
primarily the result of the transfer of real estate loans to non-accrual status.
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, 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 material, as additional information becomes known. While the
Company considers the allowance for loan losses to be adequate at June 30, 1997,
management is unable to predict the amount, if any, of future provisions to the
allowance.
The following table summarizes the activity in the allowance for loan losses for
the periods indicated (dollar amounts in thousands):
Six Months Ended
June 30,
---------------------------
1997 1996
-------- --------
Allowance for loan
losses at January 1 $ 9,333 $ 11,789
Loans charged off:
Commercial and financial (1,270) (417)
Foreign -- (3,391)
Real estate - mortgage (34) --
Consumer (1,743) (1,795)
-------- --------
Total loans charged off (3,047) (5,603)
-------- --------
Recoveries on loans previously charged off:
Commercial and financial 467 179
Foreign -- --
Real estate - mortgage 10 37
Consumer 344 247
-------- --------
Total recoveries 821 463
-------- --------
Net loans charged off (2,226) (5,140)
-------- --------
Additions to allowance
charged to operating
expense 3,700 2,300
-------- --------
Allowance for loan
losses at June 30 $ 10,807 $ 8,949
======== ========
Average amount of
loans outstanding
for the year $849,263 $729,408
======== ========
Ratio of net loans
charged off to average
loans outstanding for
the period (1) (2) .53% 1.41%
======== ========
- ---------------------
(1) Before deduction of allowance for loan losses.
(2) Annualized.
-24-
<PAGE> 25
The allowance for loan losses totaled $10.8 million and $9.3 million at June 30,
1997 and December 31, 1996, respectively, representing 1.3% and 1.1% of
outstanding loans at June 30, 1997 and December 31, 1996 respectively. The ratio
of the allowance for loan losses to non-accrual loans was 69% at June 30, 1997
compared to 173% at December 31, 1996. The ratio of the allowance to total
non-performing loans (non-accrual loans and loans past due 90 days or more) was
67% and 165% at June 30, 1997 and December 31, 1996, respectively. The decrease
in these ratios primarily reflects the increase in non-accrual real estate
loans. See "ASSET QUALITY REVIEW" above for additional discussion. 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. See
"ASSET QUALITY REVIEW" above for additional discussion. At June 30, 1997 the
total allowance included $8.6 million allocated for domestic loans, $1.0 million
allocated for foreign exposure and $1.2 million unallocated. At December 31,
1996, the domestic allocation was $7.4 million, foreign was $1.3 million and
$633,000 was unallocated.
The allowance allocated for domestic loans increased as a result of management's
evaluation of increases in non-accrual real estate loans at June 30, 1997.
Management does not believe these increases represent material deteriorating
trends, but are isolated to specific borrowers.
The allowance allocated for foreign loans decreased as a result of management's
evaluation of the portfolio. Based on an assessment of the information currently
available, management believes the allowance allocated for foreign loans at June
30, 1997 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.
During the first six months of 1997, domestic loan charge offs generally
increased compared to the same period in 1996 primarily as a result of increases
in commercial loan charge offs. There were no foreign loan charge offs in 1997,
however, during the second quarter of 1996 the Bank charged off $3.4 million of
loans with an Argentine and a Panamanian bank. Both banks had ceased normal
operations.
Allowance for Doubtful Accounts - 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
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 in the near term.
The following table summarizes the activity in the allowance for doubtful
accounts for the periods indicated (in thousands of dollars).
Six Months Ended
June 30,
----------------------------
1997 1996
--------- ---------
Allowance for doubtful accounts
at January 1 $ 2,994 $ 2,981
Provision for credit losses 2,200 2,100
Charge offs (2,257) (2,548)
Recoveries 309 270
--------- --------
Allowance for doubtful accounts
at June 30 $ 3,246 $ 2,803
========= ========
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 because the receivables portfolio turns over
approximately seven times each year. Accounts receivable which are past due are
charged off when, in the opinion of management, collection from the customer,
client or collateral realization, if any, is unlikely. 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. See "RESULTS OF OPERATIONS -- Provision for Doubtful Accounts -
Capital Factors" above for additional discussion.
-25-
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
Regulatory Matter
- -----------------
On June 16, 1997, the Comptroller (the "Comptroller") of the State of Florida
issued an order denying the application filed by Daniel Holtz, Chairman of the
Board, Chief Executive Officer and President of Bancorp, Fana Holtz, the
Vice-Chairman of the Board, and Javier Holtz, an executive officer of Bancorp
(collectively the "Applicants"), to acquire and/or maintain a controlling
interest in the Bank through their ownership and control of Bancorp. The
Comptroller required that, within 90 days, the Applicants to reduce their
ownership of Bancorp below 25% in the aggregate, or 10% in the aggregate if any
one of the Applicants remains as an officer of the Bank. The Applicants
beneficially owned approximately 46.4% of Bancorp Common Stock at June 30, 1997.
The Comptroller also required that the Applicants "take into appropriate
consideration of the ownership interest of Abel Holtz" in determining their
aggregate ownership position. Abel Holtz, the former Chairman of the Board,
Chief Executive Officer and President of Bancorp, is the husband of Fana Holtz
and father of Daniel and Javier Holtz. At June 30, 1997, Abel Holtz beneficially
owned approximately 8.9% of Bancorp Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a)
Exhibit 10.1 - Amendments to Bylaws.
Exhibit 11 - Calculation of Earnings Per Share
Exhibit 27 - Financial Data Schedule - This exhibit is incorporated
by reference to Exhibit 27 set forth in the June 30, 1997
Form 10-Q electronically filed on August 14, 1997.
- -------------------------
(b) The following Current Reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1997:
- The Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 23, 1997
reporting information under Item 5, Other Events.
- The Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 27, 1997
reporting information under Item 5, Other Events.
- The Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 8, 1997
reporting information under Item 5, Other Events.
-26-
<PAGE> 27
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1996 By: /s/ Lucious T. Harris
--------------------------------------------
LUCIOUS T. HARRIS
Senior Vice President and
Treasurer
(Principal Financial and Accounting Officer)
-27-
<PAGE> 1
EXHIBIT 10.1
AMENDMENTS TO BYLAWS
RESOLVED, that Section 1.4 of the Company's Bylaws is hereby amended to
read in its entirety as follows:
SECTION 1.4 - NOMINATIONS FOR DIRECTORS: Nominations for election to
the Board of Directors shall be made by the Nominating Committee. If
there is no Nominating Committee, the Board of Directors shall make the
nominations for election to the Board of Directors. The Nominating
Committee (or Board of Directors, as applicable) shall deliver written
nominations to the Secretary of the Corporation at least 45 days prior
to the date of the Annual Meeting of Shareholders. Provided that the
Nominating Committee (or the Board of Directors, as applicable) makes
such nominations, no nominations for directors except those made by the
Nominating Committee (or the Board of Directors, as applicable) shall
be voted upon at the meeting of the shareholders unless other
nominations by shareholders are made in accordance with the procedures
set forth herein. Any shareholder of the Corporation entitled to vote
for the election of Directors at a meeting may nominate persons for
election as Directors only if written notice of such shareholder's
intent to make such nomination is given, either by personal delivery or
by United Stated mail, postage prepaid, to the Secretary of the
Corporation at its principal executive offices not more than 90 days
nor less than 60 days prior to such meeting; provided, however, that in
the event that less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to the shareholders, notice by
the shareholder must be received no later than the close of business on
the tenth day following the date on which notice of such meeting was
mailed or such public disclosure was made. Each such notice shall set
forth:
(a) the name and address of the shareholder who intends to
make the nomination;
(b) the name, address and principal occupation of the person
or persons to be nominated;
(c) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice;
(d) the number of shares of stock of the Corporation owned
beneficially or of record by such shareholder and the nominee
or nominees;
<PAGE> 2
(e) a description of all arrangements and/or understandings
between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the
shareholder;
(f) such other information regarding each nominee proposed by
such shareholder as would have been required to be included in
a proxy statement filed pursuant to Section 14 of the
Securities Exchange Act of 1934 and all applicable rules and
regulations of the Securities and Exchange Commission had each
nominee been nominated, or intended to be nominated, by the
Board of Directors; and
(g) the consent of each nominee to serve as a Director of the
Corporation if so elected.
RESOLVED, that Section 7.8 of the Company's Bylaws is hereby amended to
read in its entirety as follows:
SECTION 7.8 - VOTING OF SHARES IN SUBSIDIARIES OR OTHER ENTITIES: Any
shares that the Corporation owns in any subsidiary or other entity
shall be voted only as directed by the Board of Directors of the
Corporation.
<PAGE> 1
EXHIBIT 11
CAPITAL BANCORP AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
<S> <C> <C>
Primary 1997 1996
- ------- ----------- -----------
Weighted average number of
common shares outstanding 7,566,786 7,461,725
Common equivalent shares
outstanding - options 620,314 656,585
----------- -----------
Total common and common
equivalent shares outstanding 8,187,100 8,118,310
=========== ===========
Net income $11,428,000 $ 9,567,000
=========== ===========
Primary earnings per share $ 1.40 $ 1.18
=========== ===========
Fully diluted
- -------------
Weighted average number of
common shares outstanding 7,566,786 7,461,725
Common equivalent shares
outstanding - options 721,109 656,585
----------- -----------
Total common and common
equivalent shares outstanding 8,287,895 8,118,310
=========== ===========
Net income $11,428,000 $ 9,567,000
=========== ===========
Fully diluted earnings per share $ 1.38 $ 1.18
=========== ===========
Three Months Ended
June 30,
-------------------------------
Primary 1997 1996
- ------- ----------- -----------
Weighted average number of
common shares outstanding 7,575,642 7,465,568
Common equivalent shares
outstanding - options 651,822 651,670
----------- -----------
Total common and common
equivalent shares outstanding 8,227,464 8,117,238
=========== ===========
Net income $ 6,241,000 $ 5,165,000
=========== ===========
Primary earnings per share $ .76 $ .64
=========== ===========
Fully diluted
- -------------
Weighted average number of
common shares outstanding 7,575,642 7,465,568
Common equivalent shares
outstanding - options 716,742 651,670
----------- -----------
Total common and common
equivalent shares outstanding 8,292,384 8,117,238
=========== ===========
Net income $ 6,241,000 $ 5,165,000
=========== ===========
Fully diluted earnings per share $ .75 $ .64
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 118,019
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 165,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 191,886
<INVESTMENTS-CARRYING> 29,260
<INVESTMENTS-MARKET> 29,403
<LOANS> 848,272
<ALLOWANCE> 10,807
<TOTAL-ASSETS> 1,910,330<F1>
<DEPOSITS> 1,197,578
<SHORT-TERM> 81,805
<LIABILITIES-OTHER> 214,900
<LONG-TERM> 257,075
0
0
<COMMON> 7,586
<OTHER-SE> 138,755
<TOTAL-LIABILITIES-AND-EQUITY> 1,897,699<F1>
<INTEREST-LOAN> 39,715
<INTEREST-INVEST> 7,143
<INTEREST-OTHER> 19,020
<INTEREST-TOTAL> 65,878
<INTEREST-DEPOSIT> 17,273
<INTEREST-EXPENSE> 27,442
<INTEREST-INCOME-NET> 38,436
<LOAN-LOSSES> 3,700
<SECURITIES-GAINS> 57
<EXPENSE-OTHER> 42,367<F2>
<INCOME-PRETAX> 18,312
<INCOME-PRE-EXTRAORDINARY> 18,312
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,428
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 5.40
<LOANS-NON> 15,722
<LOANS-PAST> 346
<LOANS-TROUBLED> 8,228
<LOANS-PROBLEM> 2,023
<ALLOWANCE-OPEN> 9,333
<CHARGE-OFFS> 3,047
<RECOVERIES> 821
<ALLOWANCE-CLOSE> 10,807
<ALLOWANCE-DOMESTIC> 8,600
<ALLOWANCE-FOREIGN> 1,000
<ALLOWANCE-UNALLOCATED> 1,207
<FN>
<F1>Difference is minority interest in consolidated subsidiary of $12,631.
<F2>Does not include $1,021 of minority interest in net income of consolidated
subsidiary.
</FN>
</TABLE>
