<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934(Fee Required)
For the fiscal year ended December 31, 1995 Commission file number 33-20417
________________Capital Directions, Inc.______________
(Exact name of registrant as specified in its charter)
___________MICHIGAN____________ ________________38-2781737_____________
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
322 South Jefferson St., Mason, Michigan 48854-0130
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (517) 676-0500
Securities registered pursuant to Section 12(b) of the act: ______None____
Securities registered pursuant to Section 12(g) of the act: ______None____
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 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_____
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
The registrant estimates that as of March 20, 1996, the aggregate market value
of the voting stock held by non-affiliates of the registrant was approximately
$9,198,576. This is based on a market price of $36.00 per share for the
Registrant's stock.
As of March 20, 1996, the registrant had outstanding 297,428 shares of common
stock having a par value of $5 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the Year Ended December 31, 1995
(Form 10-K, Part I, Part II, Part III, and Part IV)
Proxy Statement for the Annual Meeting of Shareholders to be held
April 25, 1996 (Form 10-K, Part III)
<PAGE> 2
PART I
Item 1. Business
Capital Directions, Inc. (the "Registrant") is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The
Registrant was incorporated on August 11, 1987 and formed for the purpose of
enabling Mason State Bank (the "Bank") to form a one-bank holding company and
engage in any other related activity allowed. Mason State Bank was consolidated
with Mason Bank on July 22, 1988, thereby causing Mason State Bank to become a
wholly-owned subsidiary of the Registrant.
Mason State Bank purchased Lakeside Insurance Services, Inc. in 1994 to
take advantage of the expanded insurance powers granted to Banks in 1994.
Lakeside is licensed in Michigan to sell life insurance and variable annuity
contracts.
Monex Financial Services, Inc., commenced operations in October 1988 as a
wholly-owned subsidiary of the Registrant. Monex Financial Services, Inc. is a
Michigan corporation which was capitalized with 50,000 shares of $1.00 par
value common stock.
Regulatory approval to engage in providing tax planning and preparation
services, consumer counseling services, and investment broker-dealer services
was granted in 1992. The Registrant offers these services under non-banking de
novo subsidiaries of Monex Financial Services, Inc. These subsidiaries enable
it to sell a greater number of products and receive additional fee income.
The Registrant has no substantial assets except the investment in Mason
State Bank. The Registrant and its primary subsidiary, Mason State Bank,
operate in the banking industry, which accounts for substantially all of their
assets, revenues and operating income. Further discussion of the operations of
the Registrant and its subsidiaries is discussed under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in The 1995
Annual Report to the Shareholders, incorporated herein by reference. The
Registrant's primary competition is substantially the same as Mason State
Bank's as discussed below.
The Bank was organized in 1886 under the laws of Michigan and is subject
to the Michigan Banking Code of 1969. It is insured by the Bank Insurance Fund
through the Federal Deposit Insurance Corporation. The Bank is regulated by
the Michigan Financial Institutions Bureau and the Federal Deposit Insurance
Corporation. The Registrant is regulated by the Federal Reserve Board. The
Bank's principal office is located at 322 South Jefferson Street, Mason,
Michigan. It also operates a branch at 661 North Cedar Street, Mason, Michigan.
The Registrant is also supervised and regulated by The Federal Reserve Board.
Banking services are provided to individuals, businesses, local, state and
federal governmental units and institutional customers located in Mason and the
surrounding areas. Services include demand deposits, savings and time
deposits, collections, cash management, night depositories and personal,
installment, commercial and real estate loans. The Bank offers a credit card
program affiliated with the Visa and MasterCharge Inter-Bank charge card
system.
The Bank maintains a correspondent relationship with several of the major
banks in the Detroit area and elsewhere, in order to provide for the clearance
of checks, the transfer of funds, the periodic purchase and sale of Federal
funds, and participation in large loans which would be beyond the Bank's legal
lending limit if made by the Bank alone.
The Bank has full and part-time employees (40 full-time equivalents) and
owns its main office and bank premises. The Bank operates primarily within
Ingham County. Competing with the Bank in Ingham County are several other
commercial banks and financial institutions, some of which have significantly
greater total resources than the Bank.
-1-
<PAGE> 3
ITEM 1. BUSINESS-STATISTICAL DISCLOSURE
I.(A) DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
(B) INTEREST RATES AND INTEREST DIFFERENTIAL
The following table sets forth average balances for major categories of
interest earning assets and interest bearing liabilities, the interest earned
(on a fully taxable equivalent basis) or paid on such amounts, and average
interest rates earned or paid thereon.
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
ASSETS (Dollars in Thousands)
- ------
<S> <C> <C> <C> <C> <C> <C>
Loans,
including fees(1).... $51,111 $ 4,683 9.16% $48,724 $ 4,207 8.63%
Taxable investment
securities........... 11,331 702 6.20 12,569 676 5.38
Non-taxable investment
securities(2)........ 5,329 388 7.28 6,359 494 7.77
Federal funds sold.... 1,692 99 5.85 1,175 53 4.51
------- ------- ------- -------
Total Interest
Earning Assets....... 69,463 5,872 8.45 68,827 5,430 7.89
------- ------- ------- -------
Cash and due
from banks........... 2,754 3,200
Other assets, net..... 2,783 2,884
Total Non-interest ------- -------
Earning Assets...... 5,537 6,084
------- -------
Total Assets....... $75,000 $74,911
======= =======
LIABILITIES
- -----------
Interest bearing
demand deposits...... $11,258 260 2.31 $10,236 207 2.02
Savings............... 10,881 340 3.12 11,810 320 2.71
Time deposits under
$100,000............. 28,539 1,501 5.26 31,382 1,487 4.74
Time deposits over
$100,000............. 5,731 292 5.10 4,191 96 2.29
Other borrowings...... 817 48 5.88 455 25 5.49
Total Interest ------- ------- ------- -------
Bearing Liabilities. 57,226 2,441 4.27 58,074 2,135 3.68
------- ------- ------- -------
Demand deposits....... 8,473 8,275
Other Liabilities..... 1,042 1,110
Shareholders' equity.. 8,259 7,452
Total Non-interest ------- -------
Bearing Liabilities
and Equity.......... 17,774 16,837
Total liabilities ------- -------
and Equity......... $75,000 $74,911
======= =======
Net Interest Income... $ 3,431 $ 3,295
======= =======
Net Yield on Interest
Earning Assets(2).... 4.94% 4.79%
</TABLE>
-2-
<PAGE> 4
ITEM 1. BUSINESS (Continued)
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
(1) Average balances for loans include non-accrual loans. The inclusion of
non-accrual loans and fees does not have a material effect on either
the average balance or the average interest rate.
(2) Interest on non-taxable investment securities is reflected on a fully
tax equivalent basis using an effective tax rate of 34% for 1995 and
1994.
I.(C) INTEREST RATES AND DIFFERENTIAL
The following table summarizes the changes in interest income (on a fully
taxable equivalent basis) and interest expense resulting from changes in volume
and changes in rates:
<TABLE>
<CAPTION>
1995 Over 1994 1994 Over 1993
------------------------ ------------------------
Volume(1) Rate(1) Total Volume(1) Rate(1) Total
-------- ------ ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans............... $ 190 $286 $ 476 $ 21 $ (82) $ (61)
Taxable investment
securities......... (83) 109 29 (221) (6) (227)
Non-taxable invest-
ment securities(2). (76) (30) (106) 12 0 12
Federal funds sold.. 23 23 46 (17) 24 7
Total Interest ----- ---- ----- ----- ----- -----
Income........... 54 388 442 (205) (64) (269)
----- ---- ----- ----- ----- -----
Interest Expense
Interest bearing
demand............. 24 29 53 (182) (54) (236)
Savings............. (25) 45 20 (34) 4 (30)
Time deposits under
$100,000........... (135) 149 14 62 (162) (100)
Time deposit over
$100,000........... 79 117 196 20 (2) 18
Other Borrowings.... 21 2 23 19 2 21
----- ---- ----- ----- ----- -----
Total Interest
Expense.......... (36) 342 306 (115) (212) (327)
----- ---- ----- ----- ----- -----
Net Interest Income.. $ 90 $ 46 $136 $ (90) $148 $ 58
===== ==== ==== ===== ==== ====
</TABLE>
(1) The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
(2) Interest on tax-exempt investment securities is based on a fully
taxable equivalent basis.
-3-
<PAGE> 5
ITEM 1. BUSINESS (Continued)
II. INVESTMENT PORTFOLIO
(A) A table of carrying values of the investment portfolio as of December
31, 1995 and 1994 is set forth in Note 3 on pages 21 and 22 of the 1995
Annual Report to Shareholders. Such information is incorporated herein by
reference.
(B) The following table shows the relative maturities and weighted
yields of investment securities at December 31, 1995:
(in thousands)
Held-to-Maturity
<TABLE>
<CAPTION>
1 Year 1 Year - 5 Years - After
or less 5 Years 10 Years 10 Years
------------- ------------- ------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Agencies....(2) $1,329 7.86% $ 583 7.13% $263 7.97%
States and
Political
Subdivisions
Non-taxable(1) 915 6.31 2,523 6.57 $2,172 6.90 $ 20 10.08%
(2)
Collateralized
Mortgage
Obligations.(2) 62 6.68 53 6.69 115 6.76%
------ ------ ------ ----
Total......... $2,306 7.21% $3,159 6.68% $2,172 6.90% $398 7.22%
====== ====== ====== ====
</TABLE>
Available-for-Sale
<TABLE>
<CAPTION>
1 Year 1 Year - 5 Years - After
or less 5 Years 10 Years 10 Years
------------- ------------- ------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Agencies....(2) $ 499 4.54% $2,134 5.89% $ 845 6.52%
Corporate & Equity
Securities..(2) 2,132 5.54% 2,046 5.97%
------ ------ -----
Total......... $2,631 5.35% $4,180 5.93% $ 845 6.52%
====== ====== =====
</TABLE>
(1) Weighted average yield adjusted to a taxable equivalent basis using a
federal income tax rate of 34 percent.
(2) Mortgage Backed Securities, Collateralized Mortgage Obligations, and
Corporate & Equity Securities, as reflected in the above schedules,
consider anticipated pre-payments and calls.
(C) The Registrant held no investment securities of a single issuer,
except U.S. Government and Agency Securities, in an amount greater than ten
percent of shareholders' equity as of December 31, 1995.
-4-
<PAGE> 6
ITEM 1. BUSINESS (Continued)
III. LOAN PORTFOLIO
(A) A table of loans outstanding as of December 31, 1995 and 1994 is
set forth in Note 4 on page 22 of the 1995 Annual Report to Shareholders.
Such information is incorporated herein by reference.
The loan portfolio is systematically reviewed and the results reported to
the Board of Directors of the Registrant. The purpose of these reviews is to
assist in assuring proper loan documentation, to provide for the early
identification of potential problem loans and to help ensure the adequacy of
the allowance for loan losses.
(B) The following table sets forth the remaining maturity of total
loans outstanding (excluding real estate mortgages, installment and lease
financing) at December 31, 1995, according to scheduled repayments of principal
(in thousands) and considering the banks "rollover policy." (1)
<TABLE>
<CAPTION>
1 Year 1 Year- After
or less 5 Years 5 Years Total
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Commercial and Agricultural. $ 1,405 $ 2,493 $ 1,971 $ 5,869
Real estate-construction.... 1,685 1,685
------- ------- ------- -------
Total..................... $ 3,090 $ 2,493 $ 1,971 $ 7,554
======= ======= ======= =======
</TABLE>
The following table sets forth loans due after one year which have
predetermined interest rates and/or adjustable interest rates at December 31,
1995. (in thousands)
<TABLE>
<CAPTION>
Fixed Adjustable
Rate Rate Total
------- ------- -------
<S> <C> <C> <C>
Due after one but within five years. $ 748 $ 1,745 $ 2,493
Due after five years................ 1,971 -- 1,971
------- ------- -------
Total............................. $ 2,719 $ 1,745 $ 4,464
======= ======= =======
</TABLE>
(1) The "rollover policy" is to generally write the terms of these loans for a
shorter time than the expected payments. The purpose of this is to
re-evaluate the term and credit of the respective borrower. We estimate
that this happens on approximately 80% of these borrowings and is
reflected as such in the schedule.
-5-
<PAGE> 7
ITEM 1 BUSINESS (Continued)
III. LOAN PORTFOLIO (Continued)
(C)(1) Nonaccrual, Past Due, Impaired and Restructured Loans
A table and discussion of nonaccrual, past due, impaired and
restructured loans for the years ended December 31, 1995 and 1994 is in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 10 and 11 under Provision and Allowance for Loan
Losses, Note 1 under "Interest Income on Loans" and "Allowance for loan
losses" on page 18 and 19 and in Note 5 on page 23 in the 1995 Annual
Report to the Shareholders. Such information is incorporated herein by
reference.
Gross interest income that would have been recorded in 1995 if
the loans had been current in accordance with their original terms and
outstanding throughout the period or since origination was $1,903. No
income was included in interest income on these in 1995.
(2) There are no material loans that are current as to which management has
serious doubts as to the ability of the borrower to comply with the loan
repayment terms, or which are expected to need adjustments in their
repayment terms, or which are believed to require additional provisions
for loan losses.
(3) There were no foreign outstandings as of December 31, 1995 and 1994.
(4) There were no concentrations of loans exceeding 10% of total loans which
have not been already disclosed as a category at December 31, 1995.
(D)
As of December 31, 1995, there were no other interest-bearing
assets that would be required to be disclosed under Item III, Parts
(C)(1) or (C)(2) of the Loan Portfolio listing if such assets were
loans.
-6-
<PAGE> 8
ITEM 1 BUSINESS
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) The following table sets forth loan allowance balances and summarizes the
changes in the allowance for loan losses for each of the two years ended
December 31: (in thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Balance, beginning of period... $ 792 $ 756
------- -------
Loans charged off
Commercial and Agricultural... 5 -
Real estate-construction...... - -
Real estate-mortgages......... - -
Lease financing............... - -
Installment and Others........ 35 49
------- -------
Total........................ 40 49
------- -------
Recoveries of loans charged off
Commercial and Agricultural... 4 3
Real estate-construction...... - -
Real estate-mortgages......... - -
Lease financing............... - -
Installment and Others........ 46 57
------- -------
Total........................ 50 60
------- -------
Net Charge Offs (Recoveries)... (10) (11)
Additions charged to operations 193 25
------- -------
Balance at end of period....... $ 995 $ 792
======= =======
Average gross loans outstanding $51,111 $48,724
======= =======
Percent of net charge offs
(recoveries) during the
period to average gross
loans outstanding............. (0.02)% (0.02)%
==== ====
</TABLE>
Further discussion of the provision and allowance for loan losses as well
as non-performing and impaired loans is presented in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 10 and
11, Note 1 on page 18 and 19 and Note 5 on page 23 in The 1995 Annual Report to
the Shareholders, incorporated herein by reference.
-7-
<PAGE> 9
ITEM 1 BUSINESS
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
(B) The following table presents an allocation of the allowance for
loan losses to the various loan categories at December 31: (in
thousands)
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
% of % of
Allowance Loans to Allowance Loans to
Amount Total Loans Amount Total Loans
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial and Agricultural $ 63 11.81% $ 103 12.82%
Real estate-construction... - 3.39 - .37
Real estate-mortgages...... 5 72.96 - 75.19
Installment and Others..... 82 11.84 23 11.62
Unallocated................ 845 666
-------- ------ ------- ------
Total..................... $ 995 100.00% $ 792 100.00%
======== ====== ======= ======
</TABLE>
All the allowance allocations above were deemed by management to be amounts
reasonably necessary to provide for the possibility of future losses being
incurred in the various loan categories.
V. DEPOSITS
The following table sets forth average deposit balances and the weighted
average rate paid for each of the two years ended December 31:
(in thousands)
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
Average Average
Balance Rate Balance Rate
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Non Interest-bearing Demand Deposits... $ 8,473 $ 8,275
Interest-bearing demand deposits....... 11,258 2.31% 10,236 2.02%
Savings................................ 10,881 3.12 11,810 2.71
Time deposits under $100,000........... 28,539 5.26 31,382 4.74
Time deposits of $100,000 or more...... 5,731 5.10 4,191 2.29
------- -------
Total................................. $64,882 3.69% $65,894 3.20%
======= =======
</TABLE>
The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity as of December 31, 1995.
(in thousands)
<TABLE>
<S> <C>
Three months or less.............. $ 3,866
Over three through six months..... 566
Over six months through one year..
Over one year..................... 2,109
--------
Total............................ $ 6,541
========
</TABLE>
-8-
<PAGE> 10
ITEM 1 BUSINESS
VI RETURN ON EQUITY AND ASSETS
The following table presents the ratios indicated for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Net income to average total assets.................... 1.40% 1.24%
Net income to average shareholders' equity............ 12.71 12.48
Cash dividend payout ratio............................ 29.46 31.95
Average shareholders' equity to average total assets.. 11.01 9.94
</TABLE>
VII SHORT TERM BORROWINGS - Not applicable
ITEM 2 PROPERTIES
The Bank owns the land on which the Bank's main office is located; the
land measures 85' by 170' and bears the municipal address of 322 South
Jefferson Street, Mason, Michigan. The permanent building, also owned by Mason
State Bank has approximately 6,800 square feet, including banking facilities,
storage and personnel lounge areas. This brick structure was built in the mid
1800's and has gone through several remodelings the last one being in 1986 and
is in good general condition. Part of the property is occupied by a parking
area with spaces to accommodate 20 vehicles; part is occupied by two drive-in
banking stations.
The Bank also owns the land used as a Branch Office; the land measures
368' by 297' and bears the municipal address of 661 North Cedar Street, Mason,
Michigan. The permanent building, built in the 1960's, also owned by Mason
State Bank measures approximately 2,400 square feet, including banking
facilities, storage and personnel lounge areas. This building is also in good
condition. Part of the property is occupied by a parking area with spaces to
accommodate 24 vehicles; part is occupied by 4 drive-in banking stations.
The Registrant and its other wholly owned subsidiary, Monex Financial
Services Inc., operates its business at the same address as Mason State Banks'
main office. As of March 20, 1996, the Registrant owned no properties.
There are no liens or mortgages on the above mentioned properties.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant or
its subsidiaries is a party or to which any of its property is subject, except
for proceedings which arise in the ordinary course of business. In the opinion
of management, pending legal proceedings will not have a material effect on the
consolidated financial statements of the Registrant or its subsidiaries.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
-9-
<PAGE> 11
ADDITIONAL ITEM - EXECUTIVE OFFICERS
Executive officers of the Registrant are appointed annually by the Board
of Directors at the meeting of Directors following the Annual Meeting of
Shareholders. There are no family relationships among these officers and/or
Directors of the Registrant nor any arrangement or understanding between any
officer and any other person pursuant to which the officer was elected.
The following sets forth certain information with respect to the
Registrant's executive Officers and Directors as of December 31, 1995.
<TABLE>
<CAPTION>
Position with First elected as an
Name(Age) Registrant officer of the registrant
- --------- --------------- -------------------------
<S> <C> <C>
Douglas W. Dancer (55) Chairman 1994
Gerald Ambrose (46) Vice Chairman 1994
Timothy P. Gaylord (41) President and 1995
C.E.O.
Terry Shultis (59) Senior Management 1988
Advisor
George A. Sullivan (63) Secretary 1988
Robert G. Kennedy (49) Treasurer 1988
</TABLE>
Mr. Dancer is a Director of the registrant, Chairman of the Board of
Directors of Mason State Bank and is a Director of Monex Financial Services,
Inc.
Mr. Ambrose is a Director of the registrant, Vice Chairman of the Board of
Directors of Mason State Bank and is a Director of Monex Financial Services,
Inc.
Mr. Shultis is a Director of the registrant and Senior Management Advisor
of the registrant, Mason State Bank and Monex Financial Services, Inc.
Mr. Gaylord is a Director of the registrant, President and Chief Executive
Officer of Mason State Bank.
Mr. Sullivan is a Director of the registrant, Secretary of the Board of
Directors of Mason State Bank and a Director of Monex Financial Services, Inc.
Mr. Kennedy is the Controller-Cashier of Mason State Bank and an Officer
of Monex Financial Services, Inc.
-10-
<PAGE> 12
PART II
The information called for by the items within this part is included in
the Capital Directions, Inc. Annual Report to Shareholders for the year ended
December 31, 1995, and is incorporated herein by reference, as follows:
<TABLE>
<CAPTION>
Pages in 1995
Annual Report
-------------
<S> <C> <C>
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters................ 9
Item 6. Selected Financial Data........................ 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 9 - 13
Item 8. Financial Statements and Supplementary Data.... 14 - 29
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... None
</TABLE>
PART III
The information called for by the items within this part is included in
the Capital Directions, Inc. 1995 Proxy Statement, dated March 22, 1996, and is
incorporated herein by reference, as follows:
<TABLE>
<CAPTION>
Pages in 1995
Proxy Statement
---------------
<S> <C> <C>
Item 10. Directors and Executive Officers of
the Registrant............................... 3 - 4
(In addition, reference is made to additional
item under Part I of this Form 10-K report on
page 10.)
Item 11. Executive Compensation....................... 4 - 6
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................ 2 - 3
Item 13. Certain Relationships
and Related Transactions..................... 7
</TABLE>
The information appearing in the Corporation's Proxy Statement and
in Note 4 on page 22 of the Notes to Consolidated Financial Statements
of the 1995 Annual Report to Shareholders is incorporated herein by
reference in response to this item.
-11-
<PAGE> 13
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The following consolidated financial statements of Capital Directions,
Inc. included in the 1995 Annual Report to Shareholders for the year
ended December 31, 1995, are incorporated herein by reference in item 8:
<TABLE>
<CAPTION>
Pages in 1995
Annual Report
-------------
<S> <C>
Consolidated balance sheets -
December 31, 1995 and 1994....................... 14
Consolidated statements of income for the years
ended December 31, 1995, 1994, and 1993.......... 15
Consolidated statements of cash flows for the
years ended December 31, 1995, 1994, and 1993.... 16
Consolidated statements of changes in shareholders'
equity for the years ended December 31, 1995,
1994 and 1993.................................... 17
Notes to consolidated financial statements........ 17 - 28
Report of Independent Auditor..................... 29
</TABLE>
2. Financial Statement Schedules
Not applicable
3. Exhibits
(3a) Articles of Incorporation and (3b) Bylaws (previously filed as
Exhibits included in Capital Directions, Inc.'s Registration
Statement Amendment No. 1 to Form S-4, No. 33-20417, Dated March
17, 1988).
(10) Material Contracts
(a) Incentive Compensation Plan (previously filed as Exhibits
included in Capital Directions, Inc.'s 1988 10-K report dated
March 29, 1989 and the 1993 10-K report dated March 29, 1994).
(b) Directors Deferred Compensation Plan (previously filed
as Exhibits included in Capital Directions, Inc.'s 1988 10-K
report dated March 29, 1989).
(c) Supplementary Executive Retirement Plan (previously filed as
Exhibits included in Capital Directions, Inc.'s 1988 10-K
report dated March 29, 1989).
(13) Annual Report to Shareholders for the year ended December 31, 1995
(filed herewith).
(22) Subsidiaries of registrant (previously filed as Exhibits included
in Capital Directions, Inc.'s 1988 10-K report dated March 29,
1989).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
covered by this report.
-12-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 20, 1996.
CAPITAL DIRECTIONS, INC.
/s/ Timothy P. Gaylord Timothy P. Gaylord
- --------------------------------(President and Chief Executive Officer)
/s/ Robert G. Kennedy Robert G. Kennedy
- --------------------------------(Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been duly signed by the following persons in the
capacities indicated on March 20, 1996.
/s/ Doug Dancer Doug Dancer
- --------------------------------Chairman of Board of Directors
Gerald Ambrose
- --------------------------------Vice Chairman of Board of Directors
/s/ George Sullivan George Sullivan
- --------------------------------Secretary of Board of Directors
/s/ Timothy P. Gaylord Timothy P. Gaylord
- --------------------------------President and Chief Executive Officer
Terry Shultis
- --------------------------------Senior Management Advisor
/s/ Marvin Oesterle Marvin Oesterle
- --------------------------------Director
/s/ Glenn Doran Glenn Doran Ph.D.
- --------------------------------Director
-13-
<PAGE> 15
INDEX_TO_EXHIBITS
The following exhibits are filed or incorporated by reference as part of this
report:
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- ------- ----
<S> <C>
3(A) Articles of Incorporation of the Registrant as currently in effect and
of the Registrants' form S-4 Registration Statement dated March 17, 1988
No. 33-20417).
3(B) Bylaws of the Registrant as currently in effect and any amendments
thereto (Incorporated herein by reference to exhibit 3(B) of the
Registrants' form S-4 Registration statement dated March 17, 1988 No.
33-20417).
10(A) Incentive Compensation Plan (Incorporated herein by reference to exhibit
10(A) to Registrants' Report on Form 10-K for the year ended December 31,
1988 and December 31, 1993 [1988 and 1993 10-K Report]).
10(B) Directors Deferred Compensation Plan (Incorporated herein by
reference to exhibit 10(B) to Registrants' Report on Form 10-K for the
year ended December 31, 1988 [1988 10-K Report]).
10(C) Supplementary Executive Retirement Plan (Incorporated herein by
reference to exhibit 10(C) to Registrants' Report on Form 10-K for the
year ended December 31, 1988 [1988 10-K Report]).
13 Annual Report to Shareholders for the year ended December 31,
1995 (filed herewith). 15 - 46
22 List of Subsidiaries (Incorporated herein by reference to exhibit 22 to
Registrants' Report on Form 10-K for the year ended December 31, 1988
[1988 10-K Report]).
27 Financial Data Schedule - for EDGAR filer
</TABLE>
-14-
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
For Capital Directions, Inc.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest and dividend income .. $ 5,740 $ 5,262 $ 5,535 $ 6,270 $ 7,430
Interest expense .............. 2,441 2,135 2,462 3,030 4,272
-------- -------- -------- -------- --------
Net interest income ........... 3,299 3,127 3,073 3,240 3,158
Provision for loan losses ..... 193 25 63 234 198
Non interest income ........... 1,046 735 848 745 610
Non interest expense .......... 2,714 2,580 2,703 2,616 2,615
-------- -------- -------- -------- --------
Income before income
tax expense .................. 1,438 1,257 1,155 1,135 955
Income tax expense ............ 388 327 286 300 277
-------- -------- -------- -------- --------
Net income .................... $ 1,050 $ 930 $ 869 $ 835 $ 678
======== ======== ======== ======== ========
PER SHARE(1)
Average shares outstanding .... 297,428 297,428 297,428 297,428 297,428
Net income .................... $ 3.53 $ 3.13 $ 2.92 $ 2.81 $ 2.28
Dividends declared ............ 1.04 1.00 1.00 1.00 1.00
Book value .................... 28.89 25.72 24.34 22.27 20.46
RATIOS BASED ON NET INCOME
Net income to average
shareholders' equity ......... 12.71% 12.48% 12.62% 13.10% 11.54%
Net income to average
assets ....................... 1.40 1.24 1.14 1.10 .85
BALANCE SHEET
Assets ........................ $ 77,835 $ 76,112 $ 76,027 $ 78,188 $ 79,139
Net loans ..................... 48,689 50,550 47,245 47,126 51,392
Federal funds sold/money
market investments ........... 6,050 800 2,250 3,550 2,900
Securities .................... 16,055 17,713 20,665 22,440 19,269
Deposits ...................... 66,208 66,880 67,698 70,557 72,008
Long-term Federal Home
Loan Bank borrowings ......... 1,880 430 -- -- -- -- -- --
Shareholders' equity .......... 8,594 7,648 7,239 6,624 6,086
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A 2-for-1 stock split was declared on the common stock December 15, 1994, to
be paid February 1, 1995.
Earnings, dividends, book value, and price per share figures have been restated
to give retroactive effect to this split.
8
<PAGE> 2
MARKET FOR COMMON STOCK & RELATED SECURITY HOLDER MATTERS
Capital Directions, Inc. stock is not listed on any exchange. Its shares
are traded through the local brokers of Everen Securities, Baird & Co., and
Roney & Co. Management has not verified the accuracy of their bid reporting,
nor will the price be reflective if the stock was listed on an active exchange.
At December 31, 1995, there were approximately 425 holders of the Company's
common stock. Dividends are declared on a quarterly basis with a total of
$309,325 declared in 1995 and $297,428 in 1994.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
High ......................... $27.50 $27.25 $27.00 $34.00
Low .......................... 25.75 26.00 26.00 29.00
Dividend per share declared .. .25 .25 .27 .27
1994
High ......................... $23.75 $24.75 $25.75 $25.75
Low .......................... 22.75 23.75 23.50 24.75
Dividend per share declared .. .25 .25 .25 .25
- ------------------------------------------------------------------
</TABLE>
A 2-for-1 stock split was declared on the common stock December 15, 1994, to be
paid February 1, 1995. Earnings, dividends, book value, and price per share
figures have been restated to give retroactive effect to this split.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides additional information
concerning the consolidated financial condition and results of operations for
Capital Directions, Inc. and its wholly-owned subsidiaries. It should be read
in conjunction with the consolidated financial statements and supplemental data
contained elsewhere in this Report.
Capital Directions, Inc., a one-bank holding company, commenced operations
on July 22, 1988. This was facilitated by the acquisition of 100% of the
outstanding shares of Mason State Bank in an exchange of common stock.
Monex Financial Services, Inc. commenced operations in October 1988 as
a wholly-owned subsidiary of Capital Directions, Inc. Monex Financial Services,
Inc. is a Michigan corporation that was capitalized with 50,000 shares of $1.00
par value common stock.
The Company is not aware of any market or institutional trends, events, or
circumstances that will have or are reasonably likely to have a material effect
on liquidity, capital resources, or operations except as discussed herein.
Also, the Company is not aware of any current recommendations by regulatory
authorities that will have such effect if implemented.
9
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued from page 9)
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
In 1995, Capital Directions, Inc. and its subsidiaries reported record net
income of $1,050,000. This is an increase of 12.90% over the previous year.
Earnings per share were $3.53 in 1995 compared to $3.13 in 1994. In 1995,
return on average assets increased to 1.40% from 1.24% in 1994. Return on
average shareholders' equity was 12.71%, up slightly from 12.48% in 1994. As of
December 31, 1995, the leveraged capital ratio, which excludes the net
unrealized gain or loss on securities available for sale, was 11.01%, up from
10.25% a year prior and well in excess of the minimum required by regulatory
authorities.
The following table provides a summary of the factors impacting net income
in 1995 compared to the same components in 1994.
<TABLE>
<CAPTION>
- -----------------------------------------
(IN THOUSANDS)
- -----------------------------------------
<S> <C>
1994 Net income ................. $ 930
Increase (decrease) in net income
Interest income ................. 478
Interest expense ................ (306)
Provision for loan losses ....... (168)
Non interest income ............. 311
Non interest expense ............ (134)
Income tax expense .............. (61)
-------
1995 Net income ................. $ 1,050
-------
- -----------------------------------------
</TABLE>
The combined operations of the non-bank subsidiary, Monex Financial
Services, Inc., contributed $11,000 to 1995 Company earnings. Monex Investment
Company, the main active subsidiary, reported operating income of $11,000. This
figure is a result of heightened sales from Bank Partners.
NET INTEREST INCOME
The largest segment of the Corporation's operating income is net interest
income. Net interest income is determined by adding interest and certain fees
from earning assets, then subtracting the interest paid on deposits and other
funding sources. This may be impacted by changes in the volume and mix of
earning assets, funding sources, deposits, interest rates, loan demand, and
other market factors.
Net interest income for 1995, on a fully taxable equivalent basis, was
$3,431,000, an increase of $136,000 over 1994. Average balances and rates on
major categories of interest earning assets and interest bearing liabilities
appear in Table 1. The effect on net interest income from changes in average
balances ("volume") and yields, and rates ("rate") are quantified in Table 2.
As shown, net interest income improved in 1995 due to volume and rate
increases.
Yields on assets and rates on funding sources were higher in 1995 than
1994, reflecting a higher interest rate environment. Average yields on earning
assets increased to 8.45% in 1995 from 7.89% in 1994. Interest bearing
liability rates increased from 3.68% in 1994 to 4.27% in 1995. While interest
bearing liabilities decreased slightly, non interest bearing liabilities were
5.57% higher in 1995. Increased volume of earning assets combined with a
decline in interest bearing liabilities resulted in an interest margin of
4.94%, a 15 basis point improvement over 1994.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Provision for losses on loans is charged to operations based on
management's evaluation of potential losses in the portfolio. The provision is
based upon regular review of the level and trend of non-performing assets;
loans 90 days past due, but not considered non-performing; charge offs and
recoveries; the mix of loans in the portfolio; and anticipated economic
conditions. The provision for loan losses in 1995 was $193,000 compared to
$25,000 in 1994.
A net recovery of $10,000 was achieved in 1995. This is the third
consecutive year of net recovery. Excellent loan portfolio performance
indicates a strong mid-Michigan business climate and reflects detailed
attention to under-
Bauer Financial Reports, Inc. presented a Five-Star
rating to Mason State Bank in 1995.
This award is based on a nationally
recognized measurement of safety and soundness
and is the highest rating possible on a scale of
0 to 5 stars.
10
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued from page 10)
<TABLE>
<CAPTION>
TABLE 1 (DOLLARS IN THOUSANDS) 1995 1994 1993
- ------------------------------ ----------- -------- ------- ------- -------- ------- ------- -------- --------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE* RATE* BALANCE EXPENSE* RATE* BALANCE EXPENSE* RATE*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans .......................... $ 51,111 $ 4,683 9.16% $ 48,724 $ 4,207 8.63% $ 47,268 $ 4,268 9.03%
Other earning assets ........... 18,352 1,189 6.48 20,103 1,223 6.08 24,159 1,431 5.92
-------- ------- -------- ------- -------- -------
Total earning assets ........... 69,463 5,872 8.45 68,827 5,430 7.89 71,427 5,699 7.98
Other assets ................... 5,537 6,084 5,065
-------- -------- --------
Total .......................... $ 75,000 $ 74,911 $ 76,492
======== ======== ========
Interest bearing liabilities ... $ 57,226 $ 2,441 4.27 $ 58,074 $ 2,135 3.68 $ 61,045 $ 2,462 4.03
------- ------- -------
Non interest bearing liabilities
and equity .................... 17,774 16,837 15,447
-------- -------- --------
Total .......................... $ 75,000 $ 74,911 $ 76,492
======== ======== ========
Net interest income ............ $ 3,431 $ 3,295 $ 3,237
======= ======= =======
Net interest margin on
earning assets ................ 4.94% 4.79% 4.53%
<CAPTION>
TABLE 2 (IN THOUSANDS) 1995 COMPARED TO 1994 1994 COMPARED TO 1993
- ------------------------------- ------------------------------ ---------------------------
CHANGE DUE TO: VOLUME RATE TOTAL VOLUME RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Earning assets ................. $ 54 $ 388 $ 442 $ (205) $ (64) $ (269)
Interest bearing liabilities ... (36) 342 306 (115) (212) (327)
------- ------- ----- -------- ------- ------
Net interest income ............ $ 90 $ 46 $ 136 $ (90) $ 148 $ 58
======= ======= ===== ======== ======= ======
</TABLE>
* Fully taxable equivalent basis.
writing and consistent monitoring of the portfolio. Mason State Bank
management rates the overall quality of the loan portfolio as good and the
2.00% or $995,000 allowance to total loans as very strong at year-end 1995.
Non-performing loans are defined as all loans which are accounted for as
non-accrual; loans 90 days or more past due and still accruing interest; or
loans which have been renegotiated due to the borrowers' inability to comply
with the original terms. As of December 31, 1995, non-performing loans totaled
$266,000 or .54% of total loans.
<TABLE>
<CAPTION>
-------------------------------------------
DECEMBER 31, 1995 1994
--------------------------------- -------
<S> <C> <C>
Non-accrual ........... $ 17,000 $ 29,000
90 days or more
past due ............. 191,000 203,000
Renegotiated .......... 58,000 61,000
-------- --------
Non-performing loans .. $266,000 $293,000
======== ========
</TABLE>
Renegotiated loans are in compliance with modified terms.
A loan is considered impaired when full collection of principal and
interest is not expected. At December 31, 1995, there were no impaired loans in
the portfolio.
NON INTEREST INCOME
Non interest income (excluding the gain on sale of land) increased 16.05%.
The improvement resulted from the development of the Monex program and strong
sales of Mutual Funds and Annuities. New pricing strategies have also resulted
in increased fee income.
NON INTEREST EXPENSE
Non interest expense increased 5.19% during 1995. Excluding expenses
related to Monex, operating expenses increased .97%. This consistency reflects
continued effort to control overhead while maintaining quality service levels.
A reduction in the deposit insurance assessment has also been a contributing
factor. The Bank's deposit insurance is currently assessed at the lowest rate,
reflecting a high level of safety and soundness.
INCOME TAX EXPENSE
In 1995 the provision for income tax was $388,000, up from $327,000 in
1994. This figure reflects a higher taxable income in 1995.
11
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued from page 11)
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of asset/liability management is to assure adequate
liquidity and net interest income by maintaining appropriate maturities and
balances between interest sensitive earning assets and interest bearing
liabilities. Liquidity management insures sufficient funds are maintained to
meet the cash withdrawal requirements of depositors and the credit demands of
borrowers.
Sources of liquidity include: federal funds sold, investment security
maturities, and pay downs. The Bank maintained an average balance of $1,692,000
in federal funds sold in 1995. The Bank is a member of the Federal Home Loan
Bank system for several reasons: access to an alternate funding source, lower
cost for credit services, and an alternate tool to help manage interest rate
risk. In November of 1995 and February of 1994, the Bank used this funding (see
Note 10) to directly offset loans of like terms and conditions.
Other sources of liquidity include: internally generated cash flow,
repayment and maturity of loans, borrowing, and growth in core deposits.
The Bank adopted Financial Accounting Standards Board Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities" December 31,
1993. This resulted in the classification of $3,962,000 in securities available
for sale for liquidity needs. Implementation of SFAS No. 115 provided a
one-time opportunity to reclassify securities as of December 31, 1995. As a
result, $4,168,000 in held to maturity securities were transferred to the
available for sale category. At December 31, 1995 the securities available for
sale were valued at $7,656,000. It is not anticipated that management will use
these funds due to optional sources that may be available in 1996.
Interest rate sensitivity management seeks to maximize net interest
margins through periods of changing interest rates. The Bank develops
strategies to assure that desired levels of interest sensitive assets and
interest bearing liabilities mature or reprice within selected time frames.
Strategies include the use of variable rate loan products as well as managing
deposit accounts and maturities in the investment portfolio. The chart on the
following page, using recommended regulatory standards, reflects "the rate
sensitive position" or the difference between loans and investments, and
liabilities that mature or reprice within the next year and beyond. The
financial industry has generally referred to this difference as the "GAP" and
its handling as "GAP Management". At year-end 1995, the percentage of rate
sensitive assets to rate sensitive liabilities within the one-year time horizon
was 112%.
The chart shows Capital Directions, Inc.'s GAP position as of December 31,
1995. The Corporation has an asset sensitive position within one year of
approximately $5.2 million, which indicates higher net interest income may be
earned if interest rates rise during the period. Due to the limitations of GAP
analysis, modeling is also used to enhance measurement and control.
CAPITAL RESOURCES
The adequacy of the Corporation's capital is reviewed regularly to ensure
that sufficient capital is available to meet current and future funding needs
and comply with regulatory requirements.
Shareholders' equity increased $740,000 or 9.45% to $8,568,000 at year-end
1995, which represented 11.01% of total assets. This 1995 equity figure does
not include the $26,000, net of tax in net unrealized gains on available for
sale securities. At December 31, 1994, the ratio of shareholder's equity to
total assets was 10.25%. The Corporation has a strong capital position that
will meet our needs in 1996.
Regulators established "risk-based" capital guidelines which became
effective December 31, 1990. Under the guidelines, minimum capital levels,
which may include all or a portion of the allowance for loan losses, are based
on
[PETERSON PHOTO]
Thomas L. Peterson joined Mason State Bank as Vice President,
Retail Banking in November of 1995. His career spans
over 25 years in the financial services industry. Mr. Peterson
provides expertise in the loan, operations, and branch
divisions with special focus on quality customer
service and business development.
12
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued from page 12)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
GAP MEASUREMENT 0-30 31-90 SECOND THIRD FOURTH ANNUAL 1-3 3-5 OVER 5
(DOLLARS IN THOUSANDS) DAYS DAYS QUARTER QUARTER QUARTER TOTAL YEARS YEARS YEARS TOTAL
- -------------------------- ------- ------- ------- ------- ------- ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans ...................... $13,202 $ 2,967 $ 7,705 $ 6,741 $4,831 $35,446 $ 7,428 $6,133 $7,077 $56,084
Loan repayment offset....... -- -- -- -- -- -- -- -- -- (6,400)
Allowance for loan losses... -- -- -- -- -- -- -- -- -- (995)
Federal funds sold.......... 6,050 -- -- -- -- 6,050 -- -- -- 6,050
Investments................. 1,624 2,544 1,706 200 2,460 8,534 4,469 1,661 2,191 16,855
Mortgage-backed repayments.. -- -- -- -- -- -- -- -- -- (800)
Other non-earning assets.... -- -- -- -- -- -- -- -- -- 7,041
------- ------- ------- ------- ------ ------- ------- ------ ------ -------
Total ...................... $20,876 $ 5,511 $ 9,411 $ 6,941 $7,291 $50,030 $11,897 $7,794 $9,268 $77,835
======= ======= ======= ======= ====== ======= ======= ====== ====== =======
LIABILITIES
Non interest deposits ...... $ 444 $ 888 $ 1,332 $ 1,332 $1,332 $ 5,328 $ 3,525 $ -- $ -- $ 8,853
Interest bearing deposits... 7,583 7,412 10,309 8,059 5,919 39,282 12,756 5,317 -- 57,355
Other borrowing............. 50 -- -- -- 176 226 417 373 864 1,880
Other liabilities........... -- -- -- -- -- -- -- -- -- 1,153
Capital..................... -- -- -- -- -- -- -- -- 8,594 8,594
------- ------- ------- ------- ------ ------- ------- ------ ------ -------
Total ...................... $ 8,077 $ 8,300 $11,641 $ 9,391 $7,427 $44,836 $16,698 $5,690 $9,458 $77,835
======= ======= ======= ======= ====== ======= ======= ====== ====== =======
GAP ........................ $12,799 $(2,789) $(2,230) $(2,450) $ (136) $ 5,194 $(4,801) $2,104 $ (190) $ --
Cumulative GAP ............. $12,799 $10,010 $ 7,780 $ 5,330 $5,194 -- $ 393 $2,497 $2,307 --
GAP ratio 258% 66% 81% 74% 98% 112% 71% 137% 98% --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
the perceived risk in asset categories and certain off-balance-sheet items,
such as loan commitments and standby letters of credit. On December 31, 1995,
the Bank had a "risk-based" capital to asset ratio of 18.01%. The ratio exceeds
the requirements established by regulatory agencies as shown below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
CAPITAL (DOLLARS IN THOUSANDS)
DECEMBER 31, 1995 RISK-BASED LEVERAGE
- -----------------------------------------------------------
<S> <C> <C>
Actual amount ................ $9,206 $8,568
Actual percent ............... 18.01% 11.01%
Required amount .............. $4,090 $3,112
Required percent ............. 8.00% 4.00%
EXCESS AMOUNT ................ $5,116 $5,456
- -----------------------------------------------------------
</TABLE>
Federal and State banking laws and regulations place certain restrictions
on the amount of dividends and loans that a bank can pay its parent company. Of
the $9,206,000 in risk-based capital, $5,116,000 is available for dividends to
the parent company in 1996 (before considering 1996 net income and any changes
in risk-based assets). The remaining $4,090,000 is restricted based on the
minimum risk-based capital requirements now in effect.
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of the Company are monetary in
nature and therefore the Company differs greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate equity
to assets ratio. Inflation significantly affects other expenses, which tend to
rise during periods of general inflation.
Management believes the most significant impact on financial results is
the Company's ability to react to changes in interest rates. Management seeks
to maintain an essentially balanced position between interest sensitive assets
and liabilities and actively manages the amount of securities available for
sale in order to protect against the effects of wide interest rate fluctuations
on net income and shareholders' equity.
13
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
Capital Directions, Inc.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and non interest bearing deposits(2) ............. $ 3,725 $ 3,220
Federal funds sold .................................... 6,050 800
------- -------
Total cash and cash equivalents .................. 9,775 4,020
Securities available for sale(3) ...................... 7,656 3,400
Securities held to maturity (fair value
of $8,261 in 1995 and $13,685 in 1994)(3) ............ 8,035 13,949
Federal Home Loan Bank stock .......................... 364 364
Total loans4 .......................................... 49,684 51,342
Less allowance for loan losses(5) ..................... (995) (792)
------- -------
Net loans ........................................ 48,689 50,550
Premises and equipment, net(6) ........................ 649 803
Accrued interest receivable ........................... 493 498
Other assets .......................................... 2,174 2,528
------- -------
TOTAL ASSETS ..................................... $77,835 $76,112
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest bearing ............................. $ 8,853 $ 9,051
Interest bearing(7) .............................. 57,355 57,829
------- -------
Total deposits ................................ 66,208 66,880
Accrued interest payable .............................. 207 170
Other liabilities ..................................... 946 984
Long-term Federal Home Loan Bank borrowings)(10) ...... 1,880 430
------- -------
Total liabilities ................................ 69,241 68,464
Commitments and contingencies(12)
Shareholders' equity
Common stock: $5 par value, 1,300,000 shares
authorized in 1995, 300,000 shares
authorized in 1994, 297,428 shares
outstanding in 1995 and 1994 ...................... 1,487 1,487
Additional paid in capital ........................... 2,559 2,559
Retained earnings .................................... 4,522 3,782
Net unrealized gain/(loss) on securities
available for sale, net of tax of ($13) in 1995
and $93 in 1994 ..................................... 26 (180)
------- -------
Total shareholders' equity ........................... 8,594 7,648
TOTAL LIABILITIES AND ------- -------
SHAREHOLDERS' EQUITY ...................... $77,835 $76,112
======= =======
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(2) See Note 2 -- Restrictions on Cash and Due From Banks.
(3) See Note 3 -- Securities.
(4) See Note 4 -- Loans.
(5) See Note 5 -- Allowance for Loan Losses.
(6) See Note 6 -- Premises and Equipment, Net.
(7) See Note 7 -- Interest Bearing Deposits.
(10) See Note 10 -- Long-term Federal Home Loan Bank Borrowings.
(12) See Note 12 -- Commitments and Contingencies.
In 1995, Capital Directions, Inc. presented
a $2,000 check to the Mason State Bank Centennial Fund.
Since 1986, Mason State Bank has made contributions
totaling $38,000 to support
projects that enrich the Mason area community.
14
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
Capital Directions, Inc.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
--------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees ............................. $4,683 $4,207 $4,268
Federal funds sold ................................ 99 53 46
Securities:
Taxable -- available for sale .................... 342 143 156
Taxable -- held to maturity ...................... 330 514 735
Tax exempt -- held to maturity ................... 256 326 318
Dividends on Federal Home Loan Bank stock ......... 30 19 12
------ ------ ------
TOTAL INTEREST AND DIVIDEND INCOME .............. 5,740 5,262 5,535
INTEREST EXPENSE
Deposits(7) ....................................... 2,393 2,110 2,458
Short-term borrowings ............................. 15 3 4
Long-term Federal Home Loan Bank borrowings ....... 33 22 --
------ ------ ------
TOTAL INTEREST EXPENSE .......................... 2,441 2,135 2,462
------ ------ ------
NET INTEREST INCOME ............................... 3,299 3,127 3,073
PROVISION FOR LOAN LOSSES(5) ...................... 193 25 63
------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ................................... 3,106 3,102 3,010
NON INTEREST INCOME
Service charges on deposits ....................... 274 302 318
Merchant charge card fees ......................... 24 12 77
Net gain on sales of securities ................... -- -- 13
Gain on sale of land .............................. 193 -- --
Net gain on sales of loans ........................ 5 68 124
Gain on sales of charge card loans ................ -- -- 98
Investment commission fees ........................ 364 176 90
Other income ...................................... 186 177 128
------ ------ ------
TOTAL NON INTEREST INCOME ....................... 1,046 735 848
NON INTEREST EXPENSE
Salaries and wages ................................ 1,276 1,092 1,121
Pension and other employee benefits(9) ............ 302 285 287
Net occupancy expense of premises ................. 148 146 148
Equipment rentals, depreciation, and maintenance .. 258 238 233
Federal deposit insurance premium assessment ...... 76 149 154
Other operating expenses(11) ...................... 654 670 760
------ ------ ------
TOTAL NON INTEREST EXPENSE ...................... 2,714 2,580 2,703
------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE .................. 1,438 1,257 1,155
INCOME TAX EXPENSE(8) ............................. 388 327 286
------ ------ ------
NET INCOME ........................................ $1,050 $ 930 $ 869
====== ====== ======
EARNINGS PER COMMON SHARE(1) ...................... $ 3.53 $ 3.13 $ 2.92
====== ====== ======
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1)See Note 1 -- Summary of Significant Accounting Policies.
(5)See Note 5 -- Allowance for Loan Losses.
(7)See Note 7 -- Interest Bearing Deposits.
(8)See Note 8 -- Income Tax Expense.
(9)See Note 9 -- Retirement Plans.
(11)See Note 11 -- Other Operating Expenses.
15
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Capital Directions, Inc.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME ................................................. $ 1,050 $ 930 $ 869
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Depreciation .............................................. 121 126 109
Provision for loan losses ................................. 193 25 63
Net amortization/accretion on securities .................. 130 127 146
Deferred federal income tax benefit ....................... (70) (11) (16)
Loans originated for sale ................................. (2,019) (2,599) (10,723)
Proceeds from loans originated for sale ................... 2,024 2,620 10,847
Net gain on sales of loans originated for sale ............ (5) (21) (124)
Net gain on sales of loans ................................ -- (47) (98)
Net gain on sales of securities ........................... -- -- (13)
Gain on sale of land ...................................... (193) -- --
CHANGES IN ASSETS AND LIABILITIES
Accrued interest receivable .............................. 5 (5) 97
Accrued interest payable ................................. 37 -- (23)
Other assets ............................................. 318 (417) (268)
Other liabilities ........................................ (44) 98 106
------- ------- -------
NET CASH FROM OPERATING ACTIVITIES ......................... 1,547 826 972
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities ......................... -- -- 1,688
Proceeds from maturities and principal payments
on securities available for sale ......................... 743 241 --
Proceeds from maturities and principal payments
on securities held to maturity ........................... 3,227 5,333 8,446
Purchase of securities available for sale ................. (526) -- --
Purchase of securities held to maturity ................... (1,549) (3,055) (8,432)
Cash management funds, net sales (purchases) .............. (55) (32) (51)
Proceeds from sales of loans .............................. -- 1,189 1,290
Net change in loans ....................................... 1,668 (4,474) (1,362)
Proceeds from sale of land ................................ 247 -- --
Premises and equipment expenditures ....................... (21) (34) (356)
------- ------- -------
NET CASH FROM INVESTING ACTIVITIES ......................... 3,734 (832) 1,223
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term Federal Home Loan Bank borrowings ... 1,500 430 --
Repayment of long-term Federal Home Loan Bank borrowings .. (50) -- --
Net change in time deposits ............................... 210 81 (3,634)
Net change in other deposits .............................. (882) (899) 775
Dividends paid ............................................ (304) (298) (297)
------- ------- -------
NET CASH FROM FINANCING ACTIVITIES ......................... 474 (686) (3,156)
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................... 5,755 (692) (961)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............ 4,020 4,712 5,673
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................. $ 9,775 $ 4,020 $ 4,712
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest ................................................. $ 2,404 $ 2,135 $ 2,485
Income taxes -- federal .................................. $ 373 $ 323 $ 340
</TABLE>
Upon adoption of SFAS No. 115, as of December 31, 1993, securities transferred
to the available for sale and held to maturity categories were $4,330,000 and
$16,335,000, respectively. During 1995 $4,168,000 in held to maturity
securities were transferred to the available for sale category.
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Capital Directions, Inc.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED NET UNREALIZED
DECEMBER 31, 1995, GAIN/(LOSS)
1994 AND 1993 ADDITIONAL ON SECURITIES TOTAL
(IN THOUSANDS, EXCEPT COMMON PAID IN RETAINED AVAILABLE SHAREHOLDERS'
PER SHARE DATA) STOCK CAPITAL EARNINGS FOR SALE EQUITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES -- JANUARY 1, 1993 .......... $744 $2,559 $3,321 $-- $6,624
Net income for the year .............. -- -- 869 -- 869
Cash dividends ($1 per share)(1) ..... -- -- (297) -- (297)
Unrealized gain/(loss) on
securities available for sale,
net of tax of ($22)(1) ............. -- -- -- 43 43
----- ----- ----- ---- -----
BALANCES -- DECEMBER 31, 1993 ........ 744 2,559 3,893 43 7,239
Net income for the year .............. -- -- 930 -- 930
Cash dividends ($1 per share)(1) ..... -- -- (298) -- (298)
Two-for-one stock split .............. 743 -- (743) -- --
Net change in unrealized gain/
(loss) on securities available
for sale, net of tax of $115(1) .... -- -- -- (223) (223)
----- ----- ----- ----- -----
BALANCES -- DECEMBER 31, 1994 ........ 1,487 2,559 3,782 (180) 7,648
Net income for the year .............. -- -- 1,050 -- 1,050
Cash dividends ($1.04 per share)(1) .. -- -- (310) -- (310)
Net change in unrealized gain/
(loss) on securities available
for sale, net of tax of ($106)(1) .. -- -- -- 206 206
------ ----- ----- ----- -----
Balances -- December 31, 1995 ........ $1,487 $2,559 $4,522 $26 $8,594
====== ====== ===== ===== =====
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1) See Note 1 -- Summary of Significant Accounting Policies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING:
Capital Directions, Inc. (the "Company") is a holding company whose
wholly-owned subsidiaries include Mason State Bank (the "Bank") and Monex
Financial Services, Inc. ("Monex"). The accounting policies of the Company and
its subsidiaries conform with generally accepted accounting principles and
prevailing practices within the banking and securities industry. The accrual
basis of accounting is followed for all major items of income and expense in
the preparation of the consolidated financial statements. All material
intercompany balances and transactions are eliminated in consolidation.
NATURE OF OPERATIONS:
Capital Directions, Inc. provides a broad range of banking and financial
services. Its principal subsidiary, Mason State Bank, operates predominantly in
Central Michigan as a commercial bank. The Bank's primary services include
accepting demand deposits and making residential, consumer, and commercial
loans.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of
17
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 17)
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CERTAIN SIGNIFICANT ESTIMATES:
The allowance for loan losses, fair values of securities and other
financial instruments, involve certain significant estimates made by
management. These estimates are reviewed by management routinely and it is
reasonably possible that circumstances that exist at December 31, 1995 may
change in the near-term future and that the effect could be material to the
financial statements.
SECURITIES AVAILABLE FOR SALE:
Securities available for sale consist of bonds, notes, debentures, and
certain equity securities not classified as securities held to maturity. Such
securities might be sold prior to maturity due to changes in interest rates,
prepayment risks, yield and availability of alternative investments, liquidity
needs, or other factors. At December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS No. 115). As required by SFAS No. 115,
securities classified as available for sale are reported at their fair value
and the unrealized holding gain or loss is reported, net of related income tax
effects, as a separate component of shareholders' equity, until realized.
Adoption of SFAS No. 115 increased shareholders' equity at December 31, 1993 by
$43,000, net of tax of $22,000.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
a Special Report, A Guide to Implementation of SFAS No. 115 on Accounting for
Certain Investments in Debt and Equity Securities ("Guide"). As permitted by
the Guide, on December 31, 1995, the Company made a one-time reassessment and
transferred securities from the held to maturity profile to the available for
sale portfolio. At the date of transfer, these securities had an amortized cost
of $4,168,000 and increased the unrealized gain on securities available for
sale by $10,000 and shareholders' equity by $7,000, net of tax of $3,000.
Realized gains and losses resulting from the sale of securities are
computed by the specific identification method. Interest and dividend income,
adjusted by amortization of purchase premium or discount, is included in
earnings. Premium amortization is deducted from, and discount accretion is
added to, interest income from investment securities using the level yield
method. The Company also invests in Cash Management Funds which are comprised
of U.S. Government securities. These funds are accounted for at fair value.
SECURITIES HELD TO MATURITY:
Bonds, notes, and debentures for which management has the positive intent,
and the Company the ability to hold to maturity, are reported at cost, adjusted
for the amortization of premiums and accretion of discounts. Premium
amortization is deducted from, and discount accretion is added to, interest
income from investment securities using the level yield method.
CONCENTRATIONS OF CREDIT RISK:
The Company grants residential, consumer, and commercial loans to
customers located primarily in its delineated community. Commercial and
agricultural, mortgage, and installment loans comprise 11.8%, 76.3%, and 11.9%
of total loans, respectively at December 31, 1995.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company, in the normal course of business, makes commitments to extend
credit which are not reflected in the financial statements. A summary of these
commitments is presented in Note 12.
INTEREST INCOME ON LOANS:
Interest on loans is accrued over the term of the loans based on the
principal balance outstanding. When serious doubt exists as to collectibility
of a loan, the accrual of interest is discontinued. Effective January 1, 1995,
under SFAS No. 114, as amended by SFAS No. 118, the carrying values of impaired
loans are periodically adjusted to reflect cash payments, revised estimates of
future cash flows, and increases in the present value of expected cash flows
due to the passage of time. Cash payments representing interest income are
reported as such. Other cash payments are reported as reductions in carrying
value, while increases or decreases due to changes in estimates of future
payments and due to the passage of time are reported as a component of the
provision for loan losses.
LOAN FEES AND COSTS:
Loan fees, net of direct loan origination costs, are deferred. The net
amount deferred is reported in the consolidated balance sheets as part of loans
and is recognized into interest income over the term of the loan using the
level yield method.
ALLOWANCE FOR LOAN LOSSES:
Because some loans may not be repaid in full, an allowance for loan losses
is recorded. Increases to the allowance are recorded by a provision for loan
losses charged to expense. Estimating the risk of the loss and amount of loss
on any loan is necessarily subjective. Accordingly, the allowance is maintained
by
[GREENE PHOTO]
Melanie J. Greene joined Mason State Bank in February of 1995
and serves as Director of Marketing, Sales Manager, and
Product Development Manager for the organization. In December
she was named an officer by the Board of Directors.
Ms. Greene also serves as an Executive Officer for
the Mason Area Chamber of Commerce and is involved
in many activities serving the greater Mason community.
18
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 18)
management at a level considered adequate to cover losses that are currently
anticipated based on its regular review of non-performing assets, as well as
loans 90 days past due but not considered non-performing, charge-off and
recoveries, growth and portfolio mix of loans, general economic conditions, and
other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loan situations, the whole allowance is available for any loan
charge-offs that occur. A loan is charged-off against the allowance by
management as a loss when deemed uncollectible, although collection efforts may
continue and future recoveries may occur.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures (SFAS No. 114, and No. 118). As
amended, SFAS No. 114, adopted by the Company at January 1, 1995, requires that
impaired loans, as defined, be measured based on the present value of expected
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or at the fair value of
collateral if the loan is collateral dependent. Under this standard, loans
considered to be impaired are reduced to the present value of expected cash
flows or to the fair value of collateral, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is reported as
a component of the provision for loan losses. The effect of adopting these
standards was not material to the Company's consolidated financial condition or
results of operations.
Smaller balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first mortgage loans secured by one to four
family residences, residential construction loans, automobile, home equity, and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 60 days or more. Commercial loans are
rated on a scale of 1 to 5, with 1 being satisfactory, 2 watch, 3 substandard,
4 doubtful, and 5 as loss which are then charged off. Loans totaling $75,000 or
more and graded a 4 or worse are considered for impairment. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans are often
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectible.This typically occurs when the loan is 120 days or more
past due. The nature of disclosures for impaired loans is considered generally
comparable to prior nonaccrual and renegotiated loans and nonperforming and
past due asset disclosures.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Buildings and improvements are depreciated primarily on the straight-line
method with useful lives ranging from five to 50 years. Furniture and equipment
are depreciated by accelerated and straight-line methods with useful lives
ranging from three to 15 years. Maintenance and repairs are expensed and major
improvements are capitalized.
OTHER REAL ESTATE:
Other real estate represents properties acquired through foreclosure or by
acceptance of a deed in lieu thereof. Other real estate is initially recorded
at fair value at the date of acquisition, establishing a new cost basis. Any
reduction to the fair value from the carrying value of the related loan at the
time of acquisition is accounted for as a loan loss and charged against the
allowance for loan losses. After acquisition, a valuation allowance is recorded
through a charge to income for the amount of estimated selling costs.
Valuations are periodically performed by management, and valuation allowances
are adjusted through a charge to income for changes in fair value or estimated
costs to sell. There were no properties held as other real estate at December
31, 1995 and 1994.
INCOME TAXES:
Beginning January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). The
Company records income tax expense based on the amount of taxes due on its tax
return plus deferred taxes computed based on the expected future tax
consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, using enacted tax rates, adjusted for
allowances made for uncertainty regarding the realization of net tax assets.
The effect of adopting SFAS No. 109 on 1993 net income was immaterial.
STATEMENT OF CASH FLOWS:
For the purposes of the cash flows statement, cash and cash equivalents is
defined to include the cash on hand, non interest bearing deposits in other
institutions, and federal funds
1995 Customer Service Award
Thelma Hines
"Thelma's customers trust her as a friend with whom they can
discuss their personal goals, rewards, and disappointments."
19
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 19)
sold. Customer loan and deposit transactions, cash management funds, and
deposits made with other financial institutions are reported on a net cash flow
basis.
EARNINGS AND DIVIDENDS PER COMMON SHARE:
Earnings per common share are computed based on the weighted average
number of shares outstanding during the years presented. The number of shares
used in computation of earnings per share was 297,428 in 1995, 1994, and 1993.
The earnings and dividends per share amounts have been retroactively adjusted
for a two-for-one stock split, declared on December 15, 1994 and paid February
1, 1995.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
(SFAS No. 121). SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. The Statement requires
review of such assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
The Statement is effective for financial statements for fiscal years beginning
after December 15, 1995. The Company will adopt SFAS No. 121 effective January
1, 1996. Its adoption is expected to have no material effect on the Company's
consolidated financial position or results of operations.
The FASB also recently released Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights (SFAS No. 122).
This Statement changes the accounting for mortgage servicing rights retained by
the loan originator. Under this standard, if the originator sells or
securitizes mortgage loans and retains the related servicing rights, the total
cost of the mortgage loan is allocated between the loan (without the servicing
rights) and the servicing rights, based on their relative fair values. Under
current practice, all such costs are assigned to the loan. The costs allocated
to mortgage servicing rights will be recorded as a separate asset and be
amortized in proportion to, and over the life of, the net servicing income. The
carrying value of the mortgage servicing rights will be periodically evaluated
for impairment.
The Company currently retains servicing on almost all loans originated and
sold into the secondary market. Accordingly, this statement will apply to most
loan sales. The impact on the Company's results of operations and financial
position will depend upon the volume of the loans sold with servicing rights
retained, the cost of loans originated, the relative fair values of loans, and
servicing rights at the point of sale, among other factors. In general, the
Standard will increase the amount of income recognized when loans are sold or
securitized and reduce the amount of income recognized during the servicing
period.
This Statement is effective for the Company in fiscal year 1996. This
Statement applies to loan sale transactions after implementation; retroactive
application to servicing rights created prior to adoption of the Statement is
prohibited.
The FASB has issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation (SFAS No. 123). The Statement
establishes a fair value based method of accounting for employee stock options
and similar equity instruments, such as warrants, and encourages all companies
to adopt that method of accounting for all their employee stock compensation
plans. However, the Statement allows companies to continue measuring
compensation costs for such plans using accounting guidance in place prior to
SFAS No. 123. Companies that elect to remain with the former method of
accounting must make pro-forma disclosures of net income and earnings per share
as if the fair value method provided for in SFAS No. 123 had been adopted. The
accounting requirements of the Statement are required for transactions entered
into in fiscal years that begin after December 15, 1995, although early
adoption is permitted. Disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995, or the period in
which the accounting requirements are adopted if they are adopted early.
Companies which elect to continue measuring compensation costs under current
guidance must present pro-forma disclosures for awards granted in the first
fiscal year beginning after December 15, 1994, however that disclosure need not
be made until financial statements for that fiscal year are presented for
comparative purposes with financial statements for a later fiscal year.
Management has concluded that the Company will not adopt the fair value
accounting provisions of SFAS No. 123 and will continue to apply its current
method of accounting. Accordingly, adoption of SFAS No. 123 will
20
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 20)
have no impact on the Company's consolidated financial position or results of
operations.
RECLASSIFICATION:
Certain amounts in the 1994 and 1993 consolidated financial statements
have been reclassified to conform with the 1995 presentation.
NOTE 2 -- RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company maintained non interest bearing balances to satisfy legal
reserve requirements. The average required reserve balances were $427,000 and
$434,000 at December 31, 1995 and 1994, respectively.
NOTE 3 -- SECURITIES
The amortized cost and fair values of securities available for sale are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1995 AMORTIZED UNREALIZED UNREALIZED FAIR
AND 1994 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1995:
Obligations of U.S. Government agencies .. $3,449 $30 $ (1) $3,478
Corporate securities ..................... 4,030 21 (11) 4,040
Equity securities ........................ 138 -- -- 138
------ --- ----- ------
Totals .................................. $7,617 $51 $ (12) $7,656
====== === ===== ======
1994:
Obligations of U.S. Government agencies .. $3,673 $-- $(273) $3,400
====== === ===== ======
- ---------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair values of securities held to maturity are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
GROSS GROSS
DECEMBER 31, 1995 AMORTIZED UNREALIZED UNREALIZED FAIR
AND 1994 (IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
1995:
Obligations of U.S. Government agencies ........... $2,175 $ 78 $-- $2,253
Obligations of states and political subdivisions .. 5,630 147 -- 5,777
Collateralized mortgage obligations ............... 230 1 -- 231
------ ---- --- ------
TOTALS ......................................... $8,035 $226 $-- $8,261
====== ==== === ======
1994:
Obligations of U.S. Government agencies ........... $2,713 $ 15 $(49) $2,679
Obligations of states and political subdivisions .. 5,865 32 (75) 5,822
Collateralized mortgage obligations ............... 329 2 -- 331
Corporate securities .............................. 4,959 -- (189) 4,770
Other securities .................................. 83 -- -- 83
------- ---- ----- -------
TOTALS ......................................... $13,949 $ 49 $(313) $13,685
======= ==== ===== =======
- -----------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 21)
The amortized cost and fair values of securities at December 31, 1995 by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
(IN THOUSANDS) AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
- ------------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Due in one year or less .................. $1,515 $1,522 $915 $918
Due from one to five years ............... 3,019 3,021 2,523 2,561
Due from five to 10 years ................ -- -- 1,097 1,153
Due after 10 years ....................... -- -- 1,095 1,145
------ ------ ------ ------
$4,534 $4,543 $5,630 $5,777
Collateralized mortgage obligations
Variable rate ........................... -- -- 230 231
U.S. Government mortgage backed securities
Fixed rate .............................. 526 528 1,199 1,250
Variable rate ........................... 2,419 2,447 976 1,003
Equity securities ........................ 138 138 -- --
------ ------ ------ ------
TOTALS ................................ $7,617 $7,656 $8,035 $8,261
====== ====== ====== ======
- ---------------------------------------------------------------------------------------
</TABLE>
Net purchases of mutual funds was $55,000 in 1995, $32,000 in 1994, and
$51,000 in 1993. No gains or losses were realized on sales in 1995, 1994, or
1993.
During 1993, the Company had security sales totaling $1,688,000 on which a
gross gain of $13,000 was recognized. There were no sales of securities in 1995
or 1994.
Securities with a book value of approximately $4,862,000 at December 31,
1995 were pledged to secure public deposits, other borrowings, and for other
purposes as required or permitted by law.
NOTE 4 -- LOANS
Total loans are comprised of the following classifications at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------
(IN THOUSANDS) 1995 1994
------- -------
<S> <C> <C>
Commercial and agricultural .. $ 5,869 $ 6,580
Real estate mortgage ......... 37,927 38,793
Installment .................. 5,879 5,616
Other ........................ 9 353
------- -------
TOTAL LOANS ................ $49,684 $51,342
======= =======
- --------------------------------------------------
</TABLE>
Certain directors, executive officers, and principal shareholders of the
Company, including associates of such persons, were loan customers of the
Company. A summary of activity related to these loans for 1995 and 1994 follows:
<TABLE>
<CAPTION>
- ----------------------------------------------
(IN THOUSANDS) 1995 1994
------ ------
<S> <C> <C>
Balance January 1 .... $1,375 $ 193
New loans ............ 445 1,185
Repayments ........... (330) (3)
------ ------
BALANCE DECEMBER 31 .. $1,490 $1,375
====== ======
- ----------------------------------------------
</TABLE>
22
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 22)
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Balance -- beginning of period ................ $ 792 $ 756 $ 657
Provision for loan losses ..................... 193 25 63
Loans charged-off ............................. (40) (49) (64)
Recoveries .................................... 50 60 100
----- ----- -----
Balance -- end of period ................... $ 995 $ 792 $ 756
===== ===== =====
- -----------------------------------------------------------------------------
</TABLE>
During 1995, the Company had no loans which were impaired as defined under
the provisions of SFAS No. 114 and No. 118.
NOTE 6 -- PREMISES AND EQUIPMENT, NET
The following is a summary of premises and equipment by major categories:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994
- ----------------------------------------------- ------- -------
<S> <C> <C>
Land .......................................... $ 86 $ 135
Buildings and improvements .................... 899 899
Furniture and equipment ....................... 2,049 2,054
------- -------
Total premises and equipment ............... 3,034 3,088
Less accumulated depreciation ................. (2,385) (2,285)
------- -------
PREMISES AND EQUIPMENT, NET ................ $ 649 $ 803
======= =======
- ------------------------------------------------------------------
</TABLE>
NOTE 7 -- INTEREST BEARING DEPOSITS
Interest bearing deposits are comprised of the following classifications:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AT DECEMBER 31, (IN THOUSANDS) 1995 1994
- ------------------------------ ------- -------
<S> <C> <C>
Interest bearing demand ....................... $18,422 $18,819
Savings ....................................... 10,468 10,755
Time
In denominations less than $100,000 .......... 21,924 23,335
In denominations of $100,000 or more ......... 6,541 4,920
------- -------
TOTAL INTEREST BEARING DEPOSITS ............ $57,355 $57,829
======= =======
- ------------------------------------------------------------------
</TABLE>
23
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 23)
<TABLE>
<CAPTION>
Interest expense on deposits is summarized below:
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Interest bearing demand ................................. $ 260 $ 207 $ 443
Savings ................................................. 340 320 350
Time
In denominations less than $100,000 .................... 1,501 1,487 1,587
In denominations of $100,000 or more ................... 292 96 78
------ ------ ------
TOTAL INTEREST BEARING DEPOSITS ..................... $2,393 $2,110 $2,458
====== ====== ======
</TABLE>
NOTE 8 -- INCOME TAX EXPENSE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Taxes currently payable ................................. $ 458 $ 338 $ 302
Deferred benefit ........................................ (70) (11) (16)
------ ------ ------
INCOME TAX EXPENSE ................................... $ 388 $ 327 $ 286
====== ====== ======
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
------ ------ ------
Deferred tax assets:
<S> <C> <C> <C>
Net unrealized loss on securities available for sale ... $ -- $ 93 $ --
Allowance for loan losses .............................. 230 164 155
Deferred compensation .................................. 229 184 154
Deferred loan fees ..................................... 12 7 21
Other .................................................. 3 2 1
------ ------ ------
474 450 331
Deferred tax liabilities:
Fixed assets ........................................... (46) (52) (27)
Net unrealized gain on securities available for sale ... (13) -- (22)
Deferred gain on installment sale ...................... (46) -- --
Other .................................................. (21) (14) (2)
------ ------ ------
(126) (66) (51)
------ ------ ------
NET DEFERRED TAX ASSETS .............................. $ 348 $ 384 $ 280
====== ====== ======
</TABLE>
An allowance against deferred tax assets has not been recorded for 1995, 1994,
or 1993.
24
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 24)
The difference between the financial statement income tax expense and the
amounts computed by applying the federal income tax rate to pretax income is
reconciled as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory rate ......................... 34% 34% 34%
Income tax computed at statutory rate .. $489 $427 $393
Tax effect of
Nontaxable income ..................... (77) (102) (106)
Other ................................. (24) 2 (1)
---- ---- ----
INCOME TAX EXPENSE .................. $388 $327 $286
==== ==== ====
</TABLE>
NOTE 9 -- RETIREMENT PLANS
The Company has a retirement and savings plan established for all
full-time employees. The Company makes annual matching contributions based on a
percentage of participants' compensation plus a discretionary amount determined
by the board of directors. The expense for the plan was $45,000 in 1995,
$49,000 in 1994, and $47,000 in 1993.
The Company also has an incentive compensation plan that is based upon key
performance factors for certain employees. The Company paid $33,500 in 1995,
$23,400 in 1994, and $22,000 in 1993 for incentive compensation.
The Company approved an incentive stock option plan in 1994 to provide
officers and other key employees of the Company and its subsidiaries an
opportunity to acquire a proprietary interest in the Company as an incentive to
their continued employment and efforts to promote the Company's success. The
plan provides for stock options to be granted at prices that approximate the
fair value of the stock at the respective dates of grant. Under the plan, up to
20,000 unauthorized and newly issued shares of the Company's common stock may
be issued upon exercise of stock options granted under the plan. The plan
terminates on May 20, 2003. In 1994, no options were granted. Options totaling
2,000 shares were granted at an option price of $25.50 per share in 1995 and
remain outstanding at December 31, 1995. No options were exercisable at
December 31, 1995.
A deferred compensation plan has been adopted to provide retirement
benefits to the directors, at their option, in lieu of annual directors' fees.
The present value of future benefits are accrued annually over the period of
active service of each participant. The expense for the plan was $96,000 in
1995, $86,000 in 1994, and $89,000 in 1993. Insurance on the lives of the
participants has also been purchased with the Bank as owner and beneficiary of
the policies.
NOTE 10 -- LONG-TERM FEDERAL HOME LOAN BANK BORROWINGS
Advances of $600,000 and $900,000 were obtained in November of 1995 from
the Federal Home Loan Bank (FHLB). These loans have fixed rates of 6.21% and
6.24%, respectively, with monthly interest payments required and final
maturities of November 15, 2002. An advance of $430,000 was obtained in
February 1994 from the FHLB. During 1995, $50,000 was repaid on this advance.
This loan has a fixed rate of 5.67% with monthly interest payments required and
a final maturity of February 15, 2001. All notes have a prepayment penalty
based upon the present value of the lost cash flow to the FLHB. The repayment
of these borrowings plus the penalty would not adversely affect the Company's
operations.
Total principal payments on these notes are required as follows: $226,000
in 1996, $215,000 in 1997, $202,000 in 1998, $190,000 in 1999, $183,000 in
2000, and $864,000 thereafter.
25
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 25)
NOTE 11 -- OTHER OPERATING EXPENSES
Other operating expenses for the years ended December 31 follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplies $ 60 $ 51 $ 72
State taxes 82 74 64
Deferred compensation 96 86 89
Other expense 416 459 535
---- ---- ----
TOTAL OTHER OPERATING EXPENSES $654 $670 $760
==== ==== ====
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Periodically, in the normal course of business, there are various
outstanding commitments and contingent liabilities, such as commitments to
extend credit and guarantees, which are not reflected in the accompanying
consolidated financial statements. The exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments
to make loans, standby letters of credit, and financial guarantees is
represented by the contractual amount of those instruments. The Company follows
the same credit policy to make commitments as is followed for those loans
recorded in the consolidated financial statements.
At December 31, 1995 and 1994, the Company had $340,000 and $176,000 in
standby letters of credit outstanding, and $4,949,000 and $5,163,000 in unused
lines of credit, respectively, with interest rates primarily tied to NBD's
Prime Rate. Commitment periods are generally for 365 days. There are no unused
lines of credit or standby letters of credit at fixed rates as of December 31,
1995 or 1994. Commercial, mortgage equity, and revolving credit lending
comprise 34.40%, 51.70%, and 13.90% of unused loan commitments, respectively.
Since many of the commitments to make loans expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon the exercise of the commitments is determined using management's
credit evaluation of the borrower and may include real estate, vehicles,
business assets, deposits, and other items. In management's opinion, these
commitments represent normal banking transactions and no material losses are
expected to result.
NOTE 13 -- DIVIDEND RESTRICTIONS
Federal and State banking laws and regulations place certain restrictions
on the amount of dividends and loans a bank can pay to its parent company.
Under the most restrictive of these regulations, as of December 31, 1995, the
Bank could pay approximately $5,000,000 in dividends to the parent company
without prior regulatory approval.
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS:
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES:
Fair values for securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar instruments.
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES:
The fair value of fixed and variable rate loans is principally estimated
by discounting future cash flows, applied for the time period until the loans
are assumed to reprice or be paid, using the current rates at which similar
loans would be made to borrowers with similar
26
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 26)
credit ratings and for the same remaining maturities. The carrying
value of the allowance for loan losses is a reasonable estimate of fair value.
DEPOSIT LIABILITIES:
The fair value of demand and savings deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity time deposits is
estimated by discounting future cash flows, applied for the time period until
maturity, using rates currently offered for time deposits of similar remaining
maturities.
ACCRUED INTEREST RECEIVABLE AND PAYABLE:
For these items, the carrying amount is a reasonable estimate of fair
value.
LONG-TERM FEDERAL HOME LOAN BANK BORROWINGS:
The fair values of these borrowings are determined by discounting future
cash flows, applied for the time period until maturity, using rates currently
offered for advances of similar maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:
The fair value of commitments is estimated using fees currently charged to
enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
the estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. The fair value of commitments to
extend credit and standby letters of credit were immaterial at the reporting
date presented.
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995 CARRYING ESTIMATED FAIR
(IN THOUSANDS) VALUE VALUE
- ------------------------------------------------ --------- --------------
<S> <C> <C>
Financial assets
Cash and cash equivalents .................... $9,775 $9,775
Securities available for sale ................ 7,656 7,656
Securities held to maturity .................. 8,035 8,261
Loans, net of allowance for loan losses ...... 48,689 48,817
Accrued interest receivable .................. 493 493
Financial liabilities
Deposits ..................................... (66,208) (66,342)
Long-term Federal Home Loan Bank borrowings .. (1,880) (1,872)
Accrued interest payable ..................... (207) (207)
- -------------------------------------------------------------------------------
</TABLE>
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were the Company to
have disposed of such items at December 31, 1995, the estimated fair values
would necessarily have been achieved at that date, since the market values may
differ depending on various circumstances. Also, the use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The estimated fair values at December 31, 1995
should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures,
such as premises and equipment. Also, non-financial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained workforce, customer goodwill, and similar
items.
1995
#1 Team Player Award
Melanie Greene
"Melanie has done a wonderful job of coming into a new position and producing
excellent results."
"Her professionalism and work is a quality that everyone can be proud of."
27
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued from page 27)
NOTE 15 -- CAPITAL DIRECTIONS, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, (IN THOUSANDS) 1995 1994
- -------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
ASSETS
Cash, due from banks, and other cash equivalents ............ $ 5 $ 16
Investment in Mason State Bank .............................. 8,385 7,470
Investment in Monex Financial Services, Inc. ................ 164 156
Other assets ................................................ 120 80
------ ------
TOTAL ASSETS .............................................. $8,674 $7,722
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable .......................................... $ 80 $ 74
Shareholders' equity ........................................ 8,594 7,648
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................ $8,674 $7,722
====== ======
- ------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------- ------ ------ ------
OPERATING INCOME
Dividends from Mason State Bank ............................. $ 351 $337 $457
Dividends from Monex Financial Services, Inc. ............... 3 -- --
------ ------ ------
Total operating income .................................... 354 337 457
OPERATING EXPENSES
Wages and benefits .......................................... 17 -- --
Other expenses .............................................. 4 9 12
------ ------ ------
Total operating expenses .................................. 21 9 12
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES ................................................ 333 328 445
Equity in undistributed net income of Mason State Bank ....... 709 609 505
Equity in undistributed net income (loss) of Monex
Financial Services, Inc. .................................... 8 (7) (81)
------ ------ ------
Total equity in undistributed net income of subsidiaries .. 717 602 424
------ ------ ------
NET INCOME ................................................ $1,050 $930 $869
====== ====== ======
- ------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------- ------ ----- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................. $1,050 $930 $869
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Amortization ................................................ -- -- 3
Equity in undistributed net income of subsidiaries .......... (717) (602) (424)
Change in other assets ...................................... (40) 1 28
------ ------ ------
Net cash from operating activities ........................... 293 329 476
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Monex Financial Services, Inc. ................ -- (40) (160)
------ ------ ------
Net cash from investing activities ........................... -- (40) (160)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .............................................. (304) (298) (297)
------ ------ ------
Net cash from financing activities ........................... (304) (298) (297)
------ ------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS ...................... (11) (9) 19
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............... 16 25 6
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................... $ 5 $ 16 $ 25
====== ====== ======
</TABLE>
28
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Capital Directions, Inc.
Mason, Michigan
We have audited the accompanying consolidated balance sheets of Capital
Directions, Inc. as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1995, 1994 and 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Capital Directions,
Inc. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years ended December 31, 1995, 1994 and 1993 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for securities and income taxes in 1993.
Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 8, 1996
29
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1995
ANNUAL REPORT.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,725
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,656
<INVESTMENTS-CARRYING> 8,035
<INVESTMENTS-MARKET> 8,261
<LOANS> 49,684
<ALLOWANCE> 995
<TOTAL-ASSETS> 77,835
<DEPOSITS> 66,208
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,153
<LONG-TERM> 1,880
0
0
<COMMON> 1,487
<OTHER-SE> 7,107
<TOTAL-LIABILITIES-AND-EQUITY> 77,835
<INTEREST-LOAN> 4,683
<INTEREST-INVEST> 1,027
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 5,740
<INTEREST-DEPOSIT> 2,393
<INTEREST-EXPENSE> 2,441
<INTEREST-INCOME-NET> 3,299
<LOAN-LOSSES> 193
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,714
<INCOME-PRETAX> 1,438
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,050
<EPS-PRIMARY> 3.53
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.94
<LOANS-NON> 17
<LOANS-PAST> 191
<LOANS-TROUBLED> 58
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 792
<CHARGE-OFFS> 40
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 995
<ALLOWANCE-DOMESTIC> 150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 845
</TABLE>
