<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934
For the quarter ended March 31, 1999 Commission file number 33-20417
---------------------- ---------------
Capital Directions, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2781737
- ------------------------------- ---------------------------------------
(State or 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
--------------
None
---------------------------------------------
Former name, former address and former fiscal
year, if changed since last report
Indicate by checkmark 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
---------- ----------
As of April 27, 1999 the registrant had outstanding 596,122 shares of common
stock having a par value of $5 per share.
<PAGE> 2
CAPITAL DIRECTIONS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
<S> <C>
Item 1. Consolidated Balance Sheets
March 31, 1999 and December 31, 1998......................................... 1
Consolidated Statement of Income for the Three Month
Periods ended March 31, 1999 and 1998........................................ 2
Consolidated Statement of Cash Flows for the Three Month
Periods ended March 31, 1999 and 1998........................................ 3
Consolidated Statement of Changes in Shareholders' Equity
for the Three Months ended March 31, 1999.................................... 4
Notes to Interim Consolidated Financial Statements........................... 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 6-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 11
Item 2. Changes in Securities........................................................ 11
Item 3. Defaults Upon Senior Securities.............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders.......................... 11
Item 5. Other Information............................................................ 11
Item 6. Exhibits and Reports on Form 8-K............................................. 11
Item 7. Signatures................................................................... 12
Index to Exhibits............................................................ 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
CAPITAL DIRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(In thousands)
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and non interest bearing deposits $ 2,452 $ 2,695
Interest bearing deposits 24 26
Federal funds sold - 600
--------- --------
Total cash and cash equivalents 2,476 3,321
Securities available for sale 5,212 5,320
Securities held to maturity (fair value of $6,201 as of
March 31, 1999 and $6,484 as of December 31, 1998) 6,011 6,276
Federal Home Loan Bank (FHLB) stock 875 787
--------- --------
Total investment securities 12,098 12,383
Loans:
Commercial and agricultural 4,984 5,547
Installment 3,427 3,368
Real estate mortgages 76,478 73,000
--------- --------
Total loans 84,889 81,915
Allowance for loan losses (1,028) (1,011)
--------- ---------
Net loans 83,861 80,904
Premises and equipment, net 764 784
Accrued income and other assets 3,140 2,837
--------- ---------
Total assets $ 102,339 $ 100,229
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non interest bearing $ 9,352 $ 10,288
Interest bearing 61,628 62,101
--------- ---------
Total deposits 70,980 72,389
Federal funds purchased 1,200 -
Long-term FHLB borrowings 17,505 15,593
Other liabilities 1,458 1,250
--------- ---------
Total liabilities 91,143 89,232
SHAREHOLDERS' EQUITY
Common stock: $5 par value, 1,300,000 shares authorized;
596,122 outstanding March 31, 1999 and 595,123 outstanding
December 31, 1998 2,981 2,976
Additional paid in capital 2,572 2,561
Retained earnings 5,609 5,418
Net unrealized gains/(losses) on securities available for sale,
net of tax of $17 as of March 31, 1999 and $22 as of
December 31, 1998 34 42
--------- ---------
Total shareholders' equity 11,196 10,997
--------- ---------
Total liabilities and shareholders' equity $ 102,339 $ 100,229
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 1,643 $ 1,361
Federal funds sold 6 24
Interest and dividends on investment securities:
Taxable 129 183
Tax exempt 56 52
Other interest income 1 -
--------- ---------
Total interest income 1,835 1,620
Interest Expense
Deposits 598 613
Short-term borrowings 4 1
Long-term borrowings 234 93
--------- ---------
Total interest expense 836 707
--------- ---------
Net Interest Income 999 913
Provision for loan losses 9 (8)
--------- ---------
Net interest income after provision for loan losses 990 921
Non Interest Income
Service charges on deposit accounts 62 68
Net gain (loss) on sale of loans - 1
Net gain (loss) on sale and call of securities - (13)
Other operating income 74 65
--------- ---------
Total non interest income 136 121
Non Interest Expense
Salaries and employee benefits 351 369
Premises and equipment 80 78
Other operating income 195 170
--------- ---------
Total non interest expense 626 617
Income before income tax expense 500 425
Income tax expense 148 122
--------- ---------
Net Income $ 352 $ 303
========= =========
Average common shares outstanding 595,412 595,056
Basic earnings per common share 0.59 0.51
Diluted earnings per common share 0.59 0.51
Dividends per share of common stock, declared 0.27 0.21
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(In thousands) Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 352 $ 303
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 30 28
Provision for loan losses 9 (8)
Net amortization (accretion) on securities 9 10
Net gain (loss) on sales of non-residential loans - (1)
Net gain (loss) on securities - 13
Changes in assets and liabilities:
Accrued interest receivable (129) (42)
Accrued interest payable 25 7
Other assets (170) (94)
Other liabilities 183 116
--------- ---------
Net cash from operating activities 309 332
Cash flows from investing activities
Securities available for sale:
Purchases (88) (2,444)
Maturities, calls and principal payments 87 1,834
Securities held to maturity:
Maturities, calls and principal payments 265 675
Proceeds from sale of non-residential loans - 53
Net change in loans (2,966) (2,425)
Premises and equipment expenditures (10) (27)
--------- ---------
Net cash from investing activities (2,712) (2,334)
Cash flows from financing activities
Net change in deposits (1,409) 1,571
Federal funds purchased 1,200 (450)
Proceeds from long-term FHLB borrowings 2,000 3,100
Repayment of long-term FHLB borrowings (88) (86)
Proceeds from shares issued upon exercise of stock options 16 -
Dividends paid (161) (112)
--------- ---------
Net cash from financing activities 1,558 4,023
--------- ---------
Net change in cash and cash equivalents (845) 2,021
Cash and cash equivalents at beginning of year 3,321 2,188
--------- ---------
Cash and cash equivalents at March 31 $ 2,476 $ 4,209
========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 810 $ 732
Income taxes - federal $ 168 130
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
For the three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
Net
Unrealized
Gain On
Securities Total
Additional Available Share-
Common Paid-In Retained For Sale, Holders'
Stock Capital Earnings Net of Tax Equity
----- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 2,975 $ 2,561 $ 4,652 $ 28 $ 10,216
Net income - - 303 - 303
Other comprehensive income, net:
Net change in unrealized gain on
securities available for sale, net of
tax of $2 - - - 3 3
---------
Comprehensive income 306
Cash dividends ($.19 per share) (112) (112)
--------- --------- -------- -------- ---------
Balance, March 31, 1998 $ 2,975 $ 2,561 $ 4,843 $ 31 $ 10,410
========= ========= ======== ======== =========
Balance, January 1, 1999 $ 2,976 $ 2,561 $ 5,418 $ 42 $ 10,997
Net income - - 352 - 352
Other comprehensive income, net:
Net change in unrealized gain on
securities available for sale, net of
tax of $(4) - - - (8) (8)
---------
Comprehensive income 344
Issuance of 999 shares of common stock
upon exercise of stock options 5 11 - - 16
Cash dividends ($.27 per share) (161) (161)
--------- --------- -------- -------- ---------
Balance, March 31, 1999 $ 2,981 $ 2,572 $ 5,609 $ 34 $ 11,196
========= ========= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
CAPITAL DIRECTIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management of the Registrant, the accompanying
Consolidated Financial Statements contain all adjustments (consisting only
of normal recurring items) necessary to present fairly the consolidated
financial position of the Registrant as of March 31, 1999 and December 31,
1998, the results of operations and cash flows for the three month periods
ended March 31, 1999 and 1998, and the changes in shareholders' equity for
the three month periods ended March 31, 1999 and 1998.
2. The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full
year.
3. The accompanying unaudited Consolidated Financial Statements and the notes
thereto should be read in conjunction with the Notes to Consolidated
Financial Statements and the notes included therein, for the fiscal year
end 1998, included in the Registrant's 1998 Annual Report.
4. Management determines the adequacy of the allowance for loan losses based
on an evaluation of the loan portfolio, recent loss experience, historical
performance, current economic conditions, current analyses of asset
quality and other pertinent factors. 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 March 31, 1999, non-performing loans totaled $93,000 or .11%
of total loans. This represents a decrease of $280,000 from the $373,000
balance at December 31, 1998.
<TABLE>
<CAPTION>
March 31, December 31,
Non-performing loans 1999 1998
-------------------- ---- ----
<S> <C> <C>
Non-accrual $62,000 $243,000
90 days or more past due 31,000 130,000
Renegotiated - -
------- --------
Total $93,000 $373,000
======= ========
Non-performing loans as a percent of:
Total loans .11% .46%
Allowance for loan losses 9.05% 36.89%
</TABLE>
5
<PAGE> 8
Analysis of the allowance for loan losses
The following table summarizes changes in the allowance for loan losses
arising from loans charged off, recoveries on loans previously
charged-off, and addition or reductions to the allowance which have been
charged or credited to expense.
<TABLE>
<CAPTION>
(In thousands) Three Twelve
Months Months
Ended Ended
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of period $ 1,011 $ 1,035
Charge-offs (7) (30)
Recoveries 15 29
--------- --------
Net charge-offs 8 (1)
Additions (reductions) to allowance
for loan losses 9 (23)
--------- --------
Balance at end of period $ 1,028 $ 1,011
========= ========
Average loans outstanding during the period $ 83,168 $ 69,172
========= ========
Loans outstanding at end of period $ 84,889 $ 81,915
========= ========
Allowance as a percent of:
Total loans at end of period 1.21% 1.23%
========= ========
Non-performing loans at end of period 1,105.38% 271.05%
========= ========
Net charge-offs as a percent of:
Average loans outstanding (.01)% .00%
========= ========
Allowance for loan losses (.78)% .10%
========= ========
</TABLE>
5. The provision for income taxes represents federal income tax expense
calculated using annualized rates on taxable income generated during the
respective periods.
Item 2. Management's discussion and analysis of financial condition and
results of operations
The following discussion and analysis of financial condition and results of
operations provides additional information to assess the Consolidated
Financial Statements of the Registrant and its wholly-owned subsidiaries.
Capital Directions, Inc. is a one-bank holding company which 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. The Company and its subsidiaries provide banking and financial
services in the baking industry. Substantially all revenue and services are
derived from banking products and services. The Bank's primary services
include accepting retail deposits and making residential, consumer and
commercial loans.
The corporation 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 results of operations except as
discussed herein.
6
<PAGE> 9
Financial Condition (In thousands)
During the first quarter of 1999, the assets of the corporation increased
$2,110 or 2.1% from December 31, 1998. This increase resulted primarily
from continued strong growth in mortgage lending. This growth was supported
largely by an increase in Federal Home Loan Bank borrowings.
Cash and cash equivalents have decreased $845 or 25.44% in the three month
period from December 31, 1998 to March 31, 1999. This is a result of
reducing excess available funds which are normally sold as an overnight
investment of federal funds.
Total outstanding loans have increased $2,974 during the first quarter of
1999. This is an increase of 3.63% from December 31, 1998. The majority of
this growth has been in the residential real estate portfolio. All new
loans booked in 1999 have been held within the loan portfolio. As
additional demand for real estate lending is realized, management may
consider selling newly issued loans on the secondary market.
The allowance for loan losses increased $17 or 1.68% during the three month
period ending March 31, 1999. At March 31, 1999 the allowance as a percent
of outstanding loans was 1.21% compared to 1.23% at December 31, 1998.
Management continues to maintain the allowance for loan losses at a level
considered appropriate to absorb losses inherent in the portfolio.
Total deposits have decreased $1,409 or 1.95% during the first quarter of
1999. The largest portion of this decline was concentrated in the non
interest bearing demand accounts.
Total shareholders' equity increased $199 or 1.81% in the first quarter of
1999. Net income of $352 and stock transactions from the exercise of
options of $16 have increased shareholders' equity, while dividends of $161
and net unrealized loss on available for sale securities of $8 reduced
shareholders' equity. Book value per share was $18.80 at March 31, 1999
compared to $18.48 at December 31, 1998.
Results of Operations (In thousands)
For the first quarter of 1999, net income was $352, basic earnings per
share was $.59, and diluted earnings per share was $.59, compared to $303,
$.51, and $.51 for the same period in 1998. Average earning assets
increased to $95,945 or 22.31% from March 31, 1998 to March 31, 1999. The
average yield on earning assets decreased to 7.90% for the quarter ended
March 31, 1999 from 8.46% for the comparable time period in 1998. Average
costs for rate related liabilities decreased 15 basis points to 3.83% at
March 31, 1999 from 3.98% at March 31, 1998. Net interest margin decreased
to 4.37% for the first three months of 1999 compared to 4.70% in the same
period of 1998. This is a result of the continuing lower rate environment.
The provision for loan losses was $9 during the first three months of 1999
compared to $(8) for the same period of 1998. This increase is consistent
with the growth of the loan portfolio.
Non interest income increased $15 or 12.40% during the first quarter of
1999 when compared to the first quarter of 1998. Over 86% of this increase
is attributable to the loss incurred in 1998 on investment securities. In
addition, a decline of approximately 8% in service charge income was offset
by an increase of approximately 13% in other operating income attributable
to investment center income and ATM fees.
Non interest expense increased $9 or 1.46% when comparing the first quarter
of 1999 to the first quarter of 1998. Most of this increase is a result of
increased data processing costs, consulting fees and correspondent service
charges. Decreased expenses were realized for salaries and employee
benefits.
The federal income tax provision for the first three months of 1999 was
$148, up from $122 for the same period in 1998. This increase reflects a
higher taxable income for 1999.
7
<PAGE> 10
Liquidity and interest rate risk
The primary objective of asset/liability management is to assure the
maintenance of adequate liquidity and maximize net interest income by
maintaining appropriate maturities and balances between interest sensitive
earning assets and interest bearing liabilities. Liquidity management
ensures sufficient funds are maintained to meet the cash withdrawal
requirements of depositors and the credit demand of borrowers.
Sources of liquidity include federal funds sold, investment security
maturities and principal payments. A net average balance of $498,000 in
federal funds sold was maintained during the first quarter of 1999. As a
member of the Federal Home Loan Bank system, the Bank has access to an
alternate funding source, lower cost for credit services, and an additional
tool to manage interest rate risk. During the first quarter of 1999, the
Bank used this source of funding to offset new mortgage loan demand. Other
sources of liquidity include internally generated cash flow, repayments and
maturities of loans, borrowing and normal deposit growth. The primary
source of funds for the parent company is the upstream of dividends from
the Bank. Management believes these sources of liquidity are sufficient for
the Bank and parent company to continue current business plans.
At March 31, 1999 the securities available for sale were valued at
$6,201,000. It is not anticipated that management will use these funds due
to the optional sources that may be available.
Interest rate sensitivity management seeks to maximize net interest margin
through periods of changing interest rates. The Bank develops strategies to
assure 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 in addition to
managing deposit accounts and maturities in the investment portfolio. The
following table, 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 "GAP" and
its handling as "GAP Management". Throughout the first quarter of 1999, the
results of the GAP analysis were within the Bank's policy guidelines. At
March 31, 1999, the percentage of rate sensitive assets to rate sensitive
liabilities within the one-year time horizon was 81%.
The following table shows the Corporation's GAP position as of March 31,
1999. The Corporation has a liability sensitive position of approximately
$7,843,000 which indicates higher net interest income may be earned if
rates decrease during the period. Due to the limitations of GAP analysis,
modeling is also used to enhance measurement and control.
8
<PAGE> 11
<TABLE>
<CAPTION>
GAP Measurement (Dollars in thousands)
0-30 31-90 2nd 3rd 4th Annual 1-3 3-5 Over 5
Days Days Quarter Quarter Quarter Total Years Years Years Total
---- ---- ------- ------- ------- ----- ----- ----- ----- -----
Assets
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $10,733 $3,492 $4,692 $ 4,140 $ 3,982 $27,039 $ 10,810 $ 13,262 $39,926 $ 91,037
Loan repayment
offset - - - - - - - - - -6,148
Allowance for
loan losses - - - - - - - - - -1,028
Investments 1,882 2,107 200 907 442 5,538 3,151 1,566 2,643 12,898
Mortgage-
backed
repayments - - - - - - - - - -800
Short-term
Investments 24 - - - - 24 - - - 24
Other non-
earning assets - - - - - - - - - 6,356
------- ------- ------ ------- ------- ------- -------- -------- ------- --------
Total $12,639 $ 5,599 $4,892 $ 5,047 $ 4,424 $32,601 $ 13,961 $ 14,828 $42,569 $102,339
======= ======= ====== ======= ======= ======= ======== ======== ======= ========
Liabilities
- -----------
Non interest
bearing
deposits $ 349 $ 688 $1,131 $ 1,036 $ 1,036 $ 4,240 $ 2,355 $ 2,355 $ 403 $ 9,353
Interest
bearing
deposits 10,724 8,186 5,792 4,513 5,055 34,270 14,197 7,217 5,943 61,627
Federal funds
purchased 1,200 - - - - 1,200 - - - 1,200
Long-term
FHLB
borrowings - 500 - 144 90 734 1,863 13,961 947 17,505
Other
liabilities - - - - - - - - - 1,458
Capital - - - - - - - - - 11,196
------- ------- ------- ------- ------- ------- ------- -------- ------ --------
Total $12,273 $ 9,374 $ 6,923 $ 5,693 $ 6,181 $40,444 $ 18,415 $ 23,533 $ 7,293 $102,339
======= ======= ======= ======= ======= ======= ======== ======== ======= ========
GAP $ 366 $-3,775 $-2,031 $ -646 $-1,757 $-7,843 $ -4,454 $ -8,705 $35,276
Cumulative
GAP $ 366 $-3,409 $-5,440 $-6,086 $-7,843 $-7,843 $-12,297 $-21,002 $14,274
GAP ratio 103% 60% 71% 89% 72% 81% 76% 63% 584%
</TABLE>
9
<PAGE> 12
Capital Resources
The Corporation's capital adequacy is reviewed continuously to ensure that
sufficient capital is available to meet current and future funding needs
and comply with regulatory requirements. Shareholders' equity, excluding
the net unrealized gain on securities available for sale, increased
$207,000 or 1.89% to $11,162,000 for the first quarter of 1999. This
represents 10.91% of total assets. At March 31, 1998, the similar ratio of
shareholders' equity to total assets was 12.33%. Dividends declared per
common share increased by 43.75% to $.27 per share in 1999 compared to $.19
in 1998.
Regulators established "risk-based" capital guidelines that became
effective December 31, 1990. Under the guidelines, minimum capital levels
are established for risk based and total assets based on perceived risk in
asset categories and certain off-balance sheet items, such as loan
commitments and standby letters of credit. On March 31, 1999, the Bank has
a "risk-based" total capital to asset ratio of 17.50%. The ratio exceeds
the requirements established by regulatory agencies as shown below.
<TABLE>
<CAPTION>
Capital March 31, 1999
(Dollars in thousands) Risk-based Leverage
<S> <C> <C>
Actual amount $ 12,108 $ 11,080
Actual percentage 17.50% 10.98%
Required amount $ 5,456 $ 4,038
Required percentage 8.00% 4.00%
Excess amount $ 6,652 $ 7,042
</TABLE>
Bank management does not perceive that future rate changes or inflation
will have a material impact on capital adequacy. It is the opinion of
management that capital and shareholders' equity is adequate and will
continue to be so throughout 1999.
Impact of Year 2000 compliance
The approach of the Year 2000 presents potential problems to businesses
that utilize computer systems in their daily operations. Some computer
systems may not be able to properly interpret dates after December 31,
1999, as they may use only two digits to indicate the year. Thus, a date
using "00" as the year may be recognized as the year 1900 rather than the
year 2000.
Capital Directions, Inc. has been working since 1997 to verify that our
systems are ready for year 2000, or Y2K. A team of bank professionals meet
on a regular basis to work through the phases of the bank's Y2K plan and
status updates are made monthly to the Board of Directors. As outlined in
the plan, the scope of the year 2000 project includes the compliance of all
operating systems and hardware on all platforms in the areas of both
information and non-information technology.
All of our critical systems have already been renovated, tested and
returned to production. Throughout 1999 we will continue testing our
systems. This will include participation in industry-wide tests, as well as
tests with our business partners, to verify that information can flow back
and forth between our companies' systems. In addition, we are developing
detailed contingency plans to cope with the unexpected. We fully expect the
year 2000 to be business as usual.
We will be hosting several Y2K community outreach programs throughout 1999.
Our desire is to inform customers and consumers not only as to the bank's
Y2K status; but, also to provide information on the banking industry as a
whole, as well as to provide information to consumers on such services as
power, telecommunications, local government, emergency services and Y2K
fraud awareness.
Capital Directions expects to spend approximately $45,000 associated with
the year 2000; 80% of which can be attributed to salaries. The corporation
earnings have been adequate to handle year 2000 expenditures with no delay
to other capital expenditures. It is difficult to predict exact expenses
10
<PAGE> 13
Impact of year 2000 compliance (continued)
associated with the year 2000 issue and additional funds may be needed for
unknown expenses that may occur.
All customers that have a borrowing or deposit relationship in excess of
$250,000 have been interviewed and an evaluation of their year 2000
preparedness has been completed. All material customers are making good
progress on their year 2000 plans. The corporation does not expect to
experience credit deterioration due to the year 2000 issue. The corporation
may face a liquidity risk if the public perceives liquidity risk involved
with the year 2000 and withdraws funds from the banking system. The
corporation has established lines of credit to handle this uncertainty.
No one can predict with absolute certainty the outcome of any event.
However, due to our program, early recognition of the issues and
commitment, customers can be confident that our thorough preparation will
enable our computer systems to continue to meet their financial needs.
Part II - Other Information
Item 1. Legal proceedings
The Corporation is not involved in any material pending legal proceedings
to which the Registrant or its subsidiaries is a party or 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 as of and for the period ended March 31,
1999.
Item 2. Changes in securities
During the three months ended March 31, 1999, there weren't any changes in
the Registrant's securities, relevant to the requirements of this section,
that would cause any shareholder's rights to be materially modified,
limited or qualified.
Item 3. Defaults upon senior securities
No defaults have occurred involving senior securities on the part of the
Registrant.
Item 4. Submission of matters to a vote of security holders
No matters have been submitted to a vote of the Registrant's security
holders.
Item 5. Other information
None
Item 6. Exhibits and reports on Form 8-K
1. Exhibits required by Item 601 of Regulation S-K
See Index to Exhibits on page 13.
2. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended March
31, 1999.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL DIRECTIONS, INC.
Date: May 3, 1999 By: /s/ Timothy Gaylord
----------- ---------------------------------
Timothy Gaylord
President
Date: May 3, 1999 By: /s/ Lois A. Toth
----------- ---------------------------------
Lois A. Toth
. Treasurer
12
<PAGE> 15
Index to Exhibits
The following exhibits are filed or incorporated by reference as part of this
report:
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
- Consolidation Agreement included in Amendment No. 1 to Form S-4 Registrant
Statement No. 33-20417
3 Instruments Defining the Rights of Security Holders, Including Debentures -
Not applicable
11 Statement Regarding Computation of Per Share Earnings - Not applicable
15 Letter Regarding Unaudited Interim Financial Information - Not applicable
18 Letter Regarding Change in Accounting Principals - Not applicable
19 Previous Unfiled Documents - Not applicable
20 Report Furnished to Security Holders - Not applicable
23 Published Report Regarding Matters Submitted to Vote of Security Holders -
Not applicable
24 Consents of Experts and Counsel - Not applicable
25 Power of Attorney - Not applicable
27 Financial Data Schedule (filed herewith)
28 Additional Exhibits - Not applicable
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 FIRST
QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,452
<INT-BEARING-DEPOSITS> 24
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,212
<INVESTMENTS-CARRYING> 6,011
<INVESTMENTS-MARKET> 6,201
<LOANS> 84,889
<ALLOWANCE> 1,028
<TOTAL-ASSETS> 102,339
<DEPOSITS> 70,980
<SHORT-TERM> 1,200
<LIABILITIES-OTHER> 1,458
<LONG-TERM> 17,505
0
0
<COMMON> 2,981
<OTHER-SE> 8,215
<TOTAL-LIABILITIES-AND-EQUITY> 102,339
<INTEREST-LOAN> 1,643
<INTEREST-INVEST> 185
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 1,835
<INTEREST-DEPOSIT> 598
<INTEREST-EXPENSE> 836
<INTEREST-INCOME-NET> 999
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 626
<INCOME-PRETAX> 500
<INCOME-PRE-EXTRAORDINARY> 500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
<YIELD-ACTUAL> 4.37
<LOANS-NON> 62
<LOANS-PAST> 31
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,011
<CHARGE-OFFS> 7
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,028
<ALLOWANCE-DOMESTIC> 553
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 475
</TABLE>
