<PAGE> 1
UNITED STATES
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 the quarterly period ended September 30, 1995
------------------------------------
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 Number: 0-17710
--------------------------------------------
CAPITAL BANCORPORATION, INC.
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1301390
- -------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Fourth Floor, 407 N. Kingshighway
P. O. Box 2017, Cape Girardeau, MO 63702-2017
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 334-0700
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------
(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.
Yes X NO
----- -----
At September 30, 1995, the number of shares outstanding of
the registrant's common stock was 3,086,539.
<PAGE> 2
<TABLE>
PART I - FINANCIAL INFORMATION Capital Bancorporation, Inc. and Subsidiaries
- ------------------------------ Consolidated Balance Sheets
Item 1. Financial Statements September 30, 1995 and December 31, 1994
- ---------------------------- (Dollars in thousands, except per share data)
(unaudited)
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 25,224 35,736
Interest-bearing deposits 9,355 233
Investment securities, at amortized
cost (estimated market value of
$99,150 and $111,148 at September
30, 1995 and December 31, 1994,
respectively) 98,640 113,008
Securities available for sale, at estimated
market value 14,068 8,958
Federal funds sold 79,400 4,225
Loans 851,405 776,068
Less:
Unearned interest 1,740 2,211
Allowance for possible
loan losses 13,907 11,877
---------- -------
Loans, net 835,758 761,980
Premises and equipment, net 27,917 25,761
Accrued interest receivable 8,060 6,531
Intangible assets 10,907 8,403
Other assets 6,893 5,116
---------- -------
Total assets $1,116,222 969,951
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand deposits $ 103,087 104,202
Savings deposits and interest-
bearing transaction accounts 208,110 213,996
Time deposits of $100 or more 120,712 93,508
Time deposits less than $100 546,730 423,617
---------- -------
Total deposits 978,639 835,323
Short-term borrowings 23,302 34,839
Federal Home Loan Bank advances 5,607 5,000
Notes payable 20,200 14,850
Convertible subordinated capital notes 204 207
Other liabilities 7,968 5,292
---------- -------
Total liabilities 1,035,920 895,511
---------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 200,000
shares authorized:
Series C (10.00% at September 30,
1995 and 9.75% at December 31, 1994)
increasing rate, redeemable,
cumulative, perpetual preferred stock,
$500 stated value and redemption
value per share; issued and
outstanding 27,600 shares 13,800 13,800
Common stock, $.10 par value; 6,500,000
shares authorized; issued and
outstanding 3,086,539 and 3,033,668
shares at September 30, 1995 and
December 31, 1994, respectively 309 303
Surplus 36,262 35,384
Retained earnings 29,994 25,111
Net unrealized loss on securities
available for sale (63) (158)
---------- -------
Total stockholders' equity 80,302 74,440
---------- -------
Total liabilities and
stockholders' equity $1,116,222 969,951
========== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
Capital Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------- ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $19,727 14,760 54,242 41,114
Interest on investment securities:
Taxable 1,364 1,210 4,047 3,665
Tax-exempt 122 126 372 434
Interest on securities available
for sale:
Taxable 227 149 488 482
Tax-exempt 4 3 10 10
Interest on Federal funds sold 1,150 204 2,246 622
Other interest income 83 2 88 13
------- ------ ------ ------
Total interest income 22,677 16,454 61,493 46,340
------- ------ ------ ------
INTEREST EXPENSE:
Interest on deposits 11,671 6,942 29,916 19,255
Interest on short-term borrowings 313 313 1,026 923
Interest on notes payable 532 287 1,093 796
------- ------ ------ ------
Total interest expense 12,516 7,542 32,035 20,974
------- ------ ------ ------
Net interest income 10,161 8,912 29,458 25,366
Provision for possible loan losses 437 543 1,289 846
------- ------ ------ ------
Net interest income after provision
for possible loan losses 9,724 8,369 28,169 24,520
------- ------ ------ ------
NONINTEREST INCOME:
Service charges on deposits 1,030 745 2,813 2,181
Gains on sales of securities available
for sale - - - -
Gains on sales of loans 334 245 810 1,007
Other 1,148 845 3,103 2,357
------- ------ ------ ------
Total noninterest income 2,512 1,835 6,726 5,545
------- ------ ------ ------
NONINTEREST EXPENSE:
Salaries and employee benefits 4,002 3,642 11,519 10,870
Occupancy 742 599 1,966 1,697
Equipment 587 612 1,758 1,652
FDIC assessments 169 444 1,102 1,293
Amortization of intangible assets 277 252 762 662
Other 2,045 2,111 5,473 5,579
------- ------ ------ ------
Total noninterest expense 7,822 7,660 22,580 21,753
------- ------ ------ ------
Income before applicable income tax
expense 4,414 2,544 12,315 8,312
Applicable income tax expense 1,764 1,087 4,728 3,249
------- ------ ------ ------
Net income 2,650 1,457 7,587 5,063
Preferred stock dividends 345 336 1,021 1,008
------- ------ ------ ------
Net income available to common
stockholders $2,305 1,121 6,566 4,055
====== ====== ====== ======
Earnings per common and common equivalent
share $ 0.71 0.36 2.04 1.30
Weighted average common and common
equivalent shares outstanding 3,267,901 3,125,547 3,218,331 3,107,572
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
<TABLE>
Capital Bancorporation, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
For the Nine Months Ended September 30, 1995 and 1994
(Dollars in thousands)
(unaudited)
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,587 5,063
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,445 2,909
Provision for possible loan losses 1,289 846
Stock dividends received (10) -
(Gain) loss on sale of premises and equipment (13) 2
Increase in taxes receivable 246 175
Increase in accrued interest receivable (876) (1,457)
Increase in accrued interest payable 1,473 244
Origination of loans for sale (56,620) (52,274)
Proceeds from sale of loans 57,430 53,281
Gain on sale of loans (810) (1,007)
Other operating activities, net 555 689
-------- -------
Net cash provided by operating activities 12,696 8,471
-------- -------
Cash flows from investing activities:
(Increase) decrease in interest-bearing deposits (6,204) 1,666
Principal payments received and proceeds from:
Maturities of investment securities 92,775 36,168
Maturities of securities available for sale 1,305 5,906
Sales of securities available for sale 4,423 -
Purchases of investment securities (78,284) (26,821)
Purchases of securities available for sale (1,528) (493)
Net increase in loans to customers (15,670) (89,779)
Recoveries of loans previously charged off 424 340
Decrease in cash and cash equivalents from purchase of subsidiary,
net of cash received of $364 (6,493) -
Purchases of premises and equipment (1,821) (5,088)
Proceeds from sale of premises and equipment 94 -
-------- -------
Net cash used in investing activities (10,979) (78,101)
-------- -------
Cash flows from financing activities:
Net increase in deposits 77,330 47,887
Net increase (decrease) in short-term borrowings (16,537) 1,318
Proceeds from notes payable 20,200 -
Payments on notes payable (16,230) (1,650)
Proceeds from issuance of common stock to Employee Stock Ownership Plan 322 -
Proceeds from exercise of common stock warrants and options 562 306
Payments for fractional shares in a pooling-of-interests acquisition - (2)
Dividends paid on common stock (1,683) (1,365)
Dividends paid on preferred stock (1,018) (1,008)
-------- -------
Net cash provided by financing activities 62,946 45,486
-------- -------
Net increase (decrease) in cash and cash equivalents 64,663 (24,144)
Cash and cash equivalents at beginning of period 39,961 71,573
-------- -------
Cash and cash equivalents at end of period $104,624 47,429
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $30,278 20,731
Income taxes 4,518 3,074
Noncash activity during the period for:
Transfer of loans to foreclosed property 1,151 500
Loans charged off 1,083 714
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
Capital Bancorporation, Inc.
Notes to Consolidated Financial Statements
1. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. However, except as disclosed herein,
there has been no material change in the information disclosed in the
notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. In the
opinion of management, all adjustments, consisting of normal recurring
accruals considered necessary for a fair presentation have been
included. Operating results for the three months and nine months ended
September 30, 1995 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995.
On August 31, 1994 the Company acquired Bank of South County located in
St. Louis, Missouri in a transaction accounted for as a
pooling-of-interests. Accordingly, prior period financial statements
have been restated as if the combining entities had been consolidated
for all periods.
2. On June 20, 1995, Union Planters Corporation ("UPC") and Capital
Bancorporation, Inc. entered into a definitive Agreement and Plan of
Reorganization (which was subsequently amended on June 22, 1995)
pursuant to which UPC is to acquire all of the issued and outstanding
common stock of Capital. Each share of Capital's common stock issued and
outstanding on the date of closing is to be exchanged for 1.185 shares
of UPC common stock. The transaction is expected to be completed during
the fourth quarter of 1995 or the first quarter of 1996, and is subject
to the approval of the Company's common stockholders, regulatory
approval, and the satisfaction of certain normal contractual closing
conditions.
<PAGE> 6
COMPANY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------
General
The Company's net income is derived primarily from the net interest income
of its subsidiary banks and, as of June 30, 1995 from its thrift subsidiary
(the "Banks"). Net interest income is the difference between the interest
income the Banks receive from their loan and investment portfolios and
their cost of funds, consisting primarily of the interest paid on deposits
and borrowings. The volume of, and yields earned and rates paid on, loans,
investments, and deposits significantly affect the Banks' net interest
income. Net income is also affected by the levels of provisions for
possible loan losses, noninterest income items, which consist primarily of
service charges on deposits, securities gains (losses), gains on sales of
loans, and other operating income, and by noninterest expense items.
Noninterest expense items consist primarily of salaries and employee
benefits, occupancy expenses, equipment expenses, Federal Deposit Insurance
Corporation ("FDIC") assessments, amortization of intangible assets, and
other operating expenses.
On August 31, 1994 the Company acquired Bank of South County located in St.
Louis, Missouri in a transaction accounted for as a pooling-of-interests.
Accordingly, prior period financial statements have been restated as if the
combining entities had been consolidated for all periods.
On June 20, 1995, Union Planters Corporation ("UPC") and the Company
entered into a definitive Agreement and Plan of Reorganization (which was
subsequently amended and restated on June 22, 1995 (the "Agreement"))
pursuant to which UPC is to acquire all of the issued and outstanding
common stock of the Company. Each share of the Company's common stock is
to be exchanged for 1.185 shares of UPC common stock (the "Exchange Ratio")
which UPC common stock was registered with the Securities and Exchange
Commission under the Securities Act of 1933 on October 31, 1995 and which
is to be listed for trading on the New York Stock Exchange. A cash payment
shall be made by UPC for any fractional share of UPC common stock otherwise
issuable to a Company common stockholder.
At the effective time of the acquisition, (i) each outstanding option to
purchase Company common stock previously awarded to employees of the
Company or its subsidiaries under the Company's 1990 Stock Option Plan, and
(ii) if the effective time is on or prior to December 31, 1995, each
outstanding warrant (the Company's warrants expire December 31, 1995) to
purchase Company common stock, shall automatically be converted into an
option or warrant to acquire at the exercise price per share of Capital
common stock, that number of shares of UPC common stock as shall be equal
to the Exchange Ratio. A cash payment shall be made by UPC for any
fractional share of UPC common stock otherwise issuable to a Company common
stockholder.
At the effective time of the acquisition of the Company by UPC, each of the
Company's outstanding 9% Convertible Subordinated Capital Notes shall
automatically be modified such that each $20.00 of outstanding principal
would be convertible at the option of the holder into that number of shares
and fractional shares of UPC common stock which shall be equal to the
Exchange Ratio. A cash payment shall be made by UPC for any
<PAGE> 7
fractional share of UPC common stock otherwise issuable to a Company common
stockholder.
At the effective time of the acquisition, UPC shall cause the Company to
redeem all of the issued and outstanding shares of its Series C 9.75%
Increasing Rate, Redeemable, Cumulative Preferred Stock (the "Series C
Shares") pursuant to and at the redemption price set forth in the
certificate of designation by which the Series C Shares were created, plus
accrued and unpaid dividends. Accordingly, all of the Company's depositary
shares (each such depositary share representing a 1/25th interest in a
Series C Share) shall also be redeemed.
The transaction is expected to be completed during the fourth quarter of
1995 or the first quarter of 1996, and is subject to the approval of the
Company's common stockholders, regulatory approval, and the satisfaction
of certain normal contractual closing conditions.
On June 30, 1995, the Company acquired all of the capital stock of Home
Federal Savings and Loan Association ("Home Federal"), a federally
chartered stock savings association, which has three banking locations in
Jonesboro, Arkansas and a loan production office in Paragould, Arkansas.
At June 30, 1995 Home Federal had total assets of $81,762,000, total
deposits of $65,986,000, total loans, net of unearned interest, of
$62,371,000, and equity capital of $7,857,000. The name of the institution
was changed to Capital Bank, a Federal Savings Bank ("Jonesboro Bank").
Under the terms of the agreement, the aggregate cash purchase price was
$6,856,879. The acquisition was financed through debt provided by an
unaffiliated lender and was accounted for utilizing the purchase method of
accounting.
The Banks depend upon customer deposits for the conduct of their banking
businesses. Total deposits in the Banks have increased from $835,323,000
at December 31, 1994 to $978,639,000 at September 30, 1995, of which
$67,119,000 are deposits of the Jonesboro Bank, which were not included in
the Company's deposits at December 31, 1994.
<TABLE>
The Banks and the total deposits in the respective Banks at September 30,
1995 and December 31, 1994 are as follows:
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Capital Bank of Cape Girardeau County
("Cape Girardeau Bank") $386,441,000 353,703,000
Capital Bank of Sikeston ("Sikeston Bank") 60,116,000 55,971,000
Capital Bank of Perryville,
National Association ("Perryville Bank") 71,952,000 65,349,000
Capital Bank of Columbia ("Columbia Bank") 74,408,000 68,045,000
Capital Bank and Trust ("St. Louis Bank") 129,230,000 126,327,000
Capital Bank of Southwest Missouri
("Springfield Bank") 189,373,000 165,928,000
Jonesboro Bank 67,119,000 Not Applicable
</TABLE>
In addition to the increase in deposits due to the acquisition of the
Jonesboro Bank, the increase is also due in part to a program to increase
deposits to improve the Company's liquidity. Also, some of the increase at
the Springfield Bank is associated with the tourist season in the bank's
Branson, Missouri market, a major tourist attraction where the bank has
four branches.
<PAGE> 8
The Company's loans, net of unearned interest, increased by approximately
$75,808,000 at September 30, 1995 compared to December 31, 1994. Of this
increase $60,654,000 are loans of the Jonesboro Bank, which were not
included in the Company's loans at December 31, 1994. The remaining growth
was the result of increased loan activity at the Banks.
Results of Operations
The Company's net income increased $1,193,000 to $2,650,000, which was
$0.71 per common and common equivalent share (based upon 3,267,901 average
common and common equivalent shares outstanding), for the three months
ended September 30, 1995, from $1,457,000, or $0.36 per common and common
equivalent share (based upon 3,125,547 average common and common equivalent
shares outstanding), for the three months ended September 30, 1994. Results
for the three months ended September 30, 1994 include one-time charges
pertaining to the acquisition of the Bank of South County, with an
after-tax effect of $495,000 or $0.16 per common and common equivalent
share. Net interest income increased by $1,249,000 due to an increase in
interest-earning assets. The net yield on interest-earning assets (net
interest income divided by average interest-earning assets) decreased from
4.10% for the three months ended September 30, 1994 to 3.85% for the three
months ended September 30, 1995. This decrease is primarily due to the
Company's decision to improve its liquidity through promotions of
certificates of deposit and the reduction of the prime lending rate by
0.25% in July 1995. The Company provided $437,000 to its allowance for
possible loan losses in the 1995 period, compared to a $543,000 provision
to the allowance for possible loan losses in the 1994 period. The 1995
provision was made in order to maintain a level of reserves consistent with
prior periods, considering the Company's loan growth. In the third quarter
of 1995 the FDIC determined that the Bank Insurance Fund ("BIF") had
reached the 1.25% reserve ratio mandated by the Federal Deposit Insurance
Corporation Improvement Act. ("FDICIA"). Accordingly, the FDIC computed and
refunded to BIF members the amount of the over-assessments plus interest
from the time when the BIF was determined to be recapitalized at the end
of May 1995. The amount of the refund received by the Banks was $368,000,
or $0.07 per common and common equivalent share.
The Company's net income increased $2,524,000 to $7,587,000, which was
$2.04 per common and common equivalent share (based upon 3,218,331 average
common and common equivalent shares outstanding), for the nine months ended
September 30, 1995, from $5,063,000, or $1.30 per common and common
equivalent share (based upon 3,107,572 average common and common equivalent
shares outstanding), for the nine months ended September 30, 1994. Included
in 1995 earnings were $454,000, or $0.14 per common and common equivalent
share, from non-recurring items. Of this amount, $0.05 pertains to the
deferred tax effect of certain intangible assets, $0.02 relates to the
after-tax effect of a refund of FDIC assessments, associated with the
assumption of certain deposit liabilities of First Federal Savings and Loan
Association of Southeast Missouri in May 1990 and $0.07 pertains to the
refund of BIF FDIC assessments discussed in the preceding paragraph. Net
interest income increased by $4,092,000 due to an increase in
interest-earning assets and an increase in the net yield on
interest-earning assets during the first six months of 1995. On an
aggregate basis, the net yield on interest-earning assets increased from
4.00% for the nine months ended September 30, 1994 to 4.07% for the nine
months ended September 30, 1995. This change is primarily due to the
increases in the prime lending rate during the last six months of 1994 and
the first three months of 1995. The Company provided $1,289,000 to its
allowance for possible loan losses in the 1995 period, compared to a
$846,000 provision to the allowance for possible loan losses in the 1994
period.
<PAGE> 9
The 1995 provision was made in order to maintain a level of reserves
consistent with prior periods, considering the Company's loan growth.
Noninterest expense increased by $827,000, primarily due to an increase in
salaries and employee benefits of $649,000.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through charges to
expense in the form of a provision for possible loan losses. Loan losses
and recoveries are charged or credited directly to the allowance. The
provision for possible loan losses is determined by management upon
consideration of several factors, including assessment of known inherent
risks in the loan portfolio, growth and composition of the loan portfolio,
current economic conditions, historical charge-offs, and the relationship
of the allowance to outstanding loans. Based upon the procedures described
above, management believes the allowance at September 30, 1995 to be
adequate to cover possible future losses inherent in the current portfolio.
The Company's allowance for possible loan losses was 1.64% and 1.53% of
loans, net of unearned interest, at September 30, 1995 and December 31,
1994, respectively. Net charge-offs to average outstanding loans were 0.03%
for the three months ended September 30, 1995, 0.08% for the nine months
ended September 30, 1995, and 0.07% for the year ended December 31, 1994.
The provisions for the three months and nine months ended September 30,
1995 and the year ended December 31, 1994, were in excess of the net
charge-offs for such periods.
The Company's nonperforming loans consist of loans on a nonaccrual basis,
loans which are contractually past due 90 days or more, and loans on which
the original terms have been restructured. The ratio of nonperforming loans
to total loans was 1.10% and 0.41% at September 30, 1995 and December 31,
1994, respectively. The Company's allowance for possible loans losses at
September 30, 1995 was 149% of nonperforming loans, compared to 375% at
December 31, 1994, reflecting nonperforming loans of $9,350,000 and
$3,169,000, at September 30, 1995 and December 31, 1994, respectively.
Included in the increase in nonperforming loans since December 31, 1994 are
loans in the amount of $2,265,000 at the Jonesboro Bank. The majority of
the remainder of the increase is principally due to an increase in
nonperforming loans at the St. Louis Bank.
Liquidity
The principal sources of funds which provide liquidity for the Company's
Banks are customer deposits, principal and interest payments on loans,
sales of loans, maturities of investment securities, sales of securities
available for sale, borrowings under credit arrangements from the Federal
Home Loan Bank, and earnings. Other sources of liquidity include Federal
funds purchased and short-term borrowings.
Management believes that, with the Company's current gap position
(short-term assets generally exceeding short-term liabilities), which
amounted to $96,408,000 at September 30, 1995, an increase in interest
rates would be generally favorable to the Company's results of operations.
Market forces generally exist within the Company's service areas which
would cause a delayed movement in interest rates on short-term
interest-bearing liabilities, such as NOW accounts and money market demand
accounts, when compared to the movement in such indices as the prime rate
or treasury bills. A decrease in interest rates would generally have an
unfavorable impact upon the results of the Company's operations until the
Company could reprice its deposits.
<PAGE> 10
<TABLE>
The following table sets forth the gaps for various periods at September 30, 1995.
<CAPTION>
Over 3 Over 6 Over 1
3 Months Months Year
Months Through Through Through Over 5
or less 6 Months 12 Months 5 Years Years
------- -------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Gap at September 30, 1995 $96,408,000 $18,297,000 $6,744,000 ($22,704,000) $33,019,000
</TABLE>
The Company, through its Asset Liability Management Committee,
consisting of the Company's Chief Executive Officer, Chief Financial
Officer, and the presidents of each of the Banks, monitors and manages
the Bank's liquidity by structuring the maturity dates of the Banks'
investments within the Company's Funds Management Policy ("FMP") to
provide necessary liquidity at any given time. A primary goal of the FMP
is to maintain an appropriate balance between rate-sensitive assets and
rate-sensitive liabilities to continually maximize interest rate
spreads. The Company monitors the sensitivity of the Banks' assets and
liabilities with respect to changes in interest rates and maturities and
directs the Banks' overall acquisition and allocation of funds. Current
strategy focuses on maintaining a relatively matched position between
rate-sensitive assets (particularly floating rate commercial,
industrial, and real estate loans) and rate-sensitive liabilities. The
Company currently projects an increased volume of rate-sensitive,
short-term interest-bearing liabilities to be experienced by the Banks.
The Company considers the appropriate systems to be in place to monitor
this projected changing rate environment and minimize the effects of
such on the Company's operations. Such a changed environment will cause
the Company to either be more exposed to interest rate risk, all other
considerations unchanged, or increase the relative amount of short-term
assets, which generally are associated with lower yields. Through these
systems, Company management will monitor the projected environment and
determine how to manage the use of such funds.
Capital Resources
The Company's principal sources of funds are dividends and management
fees it receives from the Banks. The ability of the Banks to pay
dividends and management fees is subject to regulatory limitations and
covenants in the Company's borrowing agreement.
Under regulatory capital guidelines, the Company and the Banks (except
the Jonesboro Bank) are required to maintain a minimum risk-based total
capital ratio of 8%, with at least 4% being Tier 1 capital. The
Jonesboro Bank is required to maintain tangible capital equal to 1.5% of
adjusted total assets and a risk-based total capital ratio equal to 8%
of risk-weighted assets. Tier 1 capital consists of common stockholders'
equity, qualifying perpetual preferred stock (which, if cumulative, can
constitute up to 25% of total Tier 1 capital), and minority interests in
equity capital accounts of consolidated subsidiaries, less goodwill. In
addition, the Company and each of its Banks must maintain a minimum
leverage ratio (Tier 1 capital or, in the case of the Jonesboro Bank,
core capital, to total assets) of at least 3%; however, for all but the
most highly rated bank holding companies and banks, a leverage ratio of
3%, plus an additional cushion of at least 100 to 200 basis points must
be maintained. In accordance with FDICIA, the federal regulatory
agencies adopted regulations that revise the risk-based capital
standards to take into account concentration of credit risk and risks of
nontraditional activities. Federally insured financial institutions that
have significant amounts of their assets
<PAGE> 11
concentrated in risky loans or nontraditional banking activities, such
as derivatives, and who fail to adequately manage these risks, may be
required to set aside more than 8% of their total capital to guard
against these risks. In addition, the Federal Reserve Board, the Office
of Thrift Supervision, and the Federal Deposit Insurance Corporation
have adopted regulations to factor exposure to interest-rate risk into
the risk-based capital standards. It is anticipated that the Office of
the Comptroller of the Currency will adopt a similar rule. These
regulations do not have material adverse impact on the Company or the
Banks.
The following table sets forth the ratios referred to above of the
Company and its Banks at September 30, 1995 and December 31, 1994,
giving full effect to the exclusion of intangible assets.
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
-------------------------------------
Total Tier 1 Leverage Ratio
----------------- ----------------- ----------------
9/30/95 12/31/94 9/30/95 12/31/94 9/30/95 12/31/94
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Company 9.76% 10.38% 8.49% 9.11% 6.28% 6.88%
Cape Girardeau Bank 11.37 11.50 10.12 10.25 7.44 7.34
Sikeston Bank 11.30 10.74 10.05 9.49 7.30 7.20
Perryville Bank 12.45 12.68 11.20 11.43 7.95 8.01
Columbia Bank 10.56 11.39 9.31 10.14 7.31 6.61
St. Louis Bank 14.33 13.41 13.08 12.16 9.75 9.53
Springfield Bank 11.54 11.12 10.29 9.87 8.03 8.40
Jonesboro Bank 10.52 N/A 9.27 N/A 5.97 N/A
</TABLE>
The Company believes that its current capital and debt arrangements as
well as earnings from the Banks will be adequate to permit the Company
to meet its operating needs, debt service requirements, and dividends on
its common stock and Series C Shares for the foreseeable future. Other
than its outstanding warrants, its Convertible Subordinated Capital
Notes, and stock options awarded under the 1990 Stock Option Plan, the
Company has no other commitments for the issuance of additional
securities.
The Company financed the acquisition of the Jonesboro Bank through debt
provided by an unaffiliated lender. In connection therewith, the Company
refinanced its existing debt with that same lender.
<PAGE> 12
Effect of New Accounting Standards
In May 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" ("SFAS 122") which requires that a mortgage banking
enterprise recognize as separate assets the rights to service mortgage
loans for others at the origination or purchase date of the loan, when
the enterprise has a definitive plan to sell or securitize the loans and
retain the mortgage servicing rights, assuming the fair value of the
loans and servicing rights may be practically estimated. Otherwise,
servicing rights should be recognized when the underlying loans are sold
or securitized, using an allocation of the total cost of the loans based
on the relative fair values at the date of sale. SFAS 122 also requires
an assessment of capitalized mortgage servicing rights for impairment to
be based on the current fair value of those rights.
SFAS 122 is required to be applied prospectively in fiscal years
beginning after December 15, 1995. The Company is currently studying the
expected impact of this standard on its financial condition.
<PAGE> 13
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) See the Exhibit Index at page 15 of this report.
(b) On June 28, 1995, the Company filed a Current Report on
Form 8-K (the "8-K") with the Securities and Exchange
Commission (the "SEC"), to report the execution by the
Company and UPC of the Agreement dated June 20, 1995
(which Agreement was amended and restated on June 22,
1995). The Company filed an amendment to the 8-K with the
SEC on July 28, 1995 which included as Exhibit 2 thereto,
an executed copy of the Agreement.
<PAGE> 14
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.
Capital Bancorporation, Inc.
-----------------------------------
Registrant
November 8, 1995 /s/ Van H. Puls
- ----------------------------- ---------------------------------
Date Van H. Puls
President &
Chief Executive Officer
(Principal Executive Officer)
November 8, 1995 /s/ David G. Collier
- ----------------------------- ---------------------------------
Date David G. Collier
Senior Vice President &
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
<PAGE> 15
EXHIBIT INDEX
These exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit Sequential
- ------- ----------
Number Description Page No.
- ------ ----------- --------
<C> <S> <C>
2 Omitted - Inapplicable
3 Omitted - Inapplicable
4(iii) Omitted - Inapplicable
10 Omitted - Inapplicable
11 Omitted - Inapplicable
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
27 Financial Data Schedule
99 Omitted - Inapplicable
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 25,224,000
<INT-BEARING-DEPOSITS> 9,355,000
<FED-FUNDS-SOLD> 79,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,068,000
<INVESTMENTS-CARRYING> 98,640,000
<INVESTMENTS-MARKET> 99,150,000
<LOANS> 849,665,000
<ALLOWANCE> 13,907,000
<TOTAL-ASSETS> 1,116,222,000
<DEPOSITS> 978,639,000
<SHORT-TERM> 23,302,000
<LIABILITIES-OTHER> 7,968,000
<LONG-TERM> 26,011,000
0
13,800,000
<COMMON> 309,000
<OTHER-SE> 66,193,000
<TOTAL-LIABILITIES-AND-EQUITY> 1,116,222,000
<INTEREST-LOAN> 54,242,000
<INTEREST-INVEST> 4,917,000
<INTEREST-OTHER> 2,334,000
<INTEREST-TOTAL> 61,493,000
<INTEREST-DEPOSIT> 29,916,000
<INTEREST-EXPENSE> 32,035,000
<INTEREST-INCOME-NET> 29,458,000
<LOAN-LOSSES> 1,289,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,580,000
<INCOME-PRETAX> 12,315,000
<INCOME-PRE-EXTRAORDINARY> 12,315,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,587,000
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.04
<YIELD-ACTUAL> 8.46
<LOANS-NON> 7,515,000
<LOANS-PAST> 1,300,000
<LOANS-TROUBLED> 535,000
<LOANS-PROBLEM> 35,079,000
<ALLOWANCE-OPEN> 11,877,000
<CHARGE-OFFS> 1,083,000
<RECOVERIES> 424,000
<ALLOWANCE-CLOSE> 13,907,000
<ALLOWANCE-DOMESTIC> 13,907,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
