<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 Quarter Ended SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 33-46573
--------
CAPITAL HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its Charter)
OHIO 34-1588902
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5520 Monroe Street, Sylvania, Oh 43560
-----------------------------------------------------
(Address of principal executive offices and zip code)
(419) 885-7379
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) YES [X] (2) NO [ ]
As of September 30, 1996, there were 1,884,051 shares of common stock
outstanding.
<PAGE> 2
CAPITAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
- -----------------------------
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated balance sheets
September 30, 1996 and December 31, 1995 3
Consolidated statements of income
Three months ended September 30, 1996 and 1995;
Nine months ended September 30, 1996 and 1995 4
Consolidated statement of shareholders' equity
Nine months ended September 30, 1996 and 1995 5
Consolidated statements of cash flows
Nine months ended September 30, 1996 and 1995 6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION 10
- ---------------------------
SIGNATURES 11
- ----------
</TABLE>
2
<PAGE> 3
CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,801,613 $ 13,047,891
------------ ------------
Total cash and cash equivalents 14,801,613 13,047,891
Investment Securities Available for sale,
at fair value 157,956,741 140,626,604
Loans 354,774,471 324,788,467
Less: Allowance for credit losses 5,642,377 4,960,000
Net loans 349,132,094 319,828,467
Bank premises and equipment 4,421,144 4,483,154
Interest receivable and other assets 7,760,289 5,184,311
------------ ------------
Total Assets $534,071,881 $483,170,427
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $411,502,915 $368,109,187
Noninterest bearing 38,854,233 39,512,336
------------ ------------
Total deposits 450,357,148 407,621,523
Short-term borrowings 39,829,330 35,202,708
Interest payable and other liabilities 5,264,972 4,210,134
------------ ------------
Total Liabilities 495,451,450 447,034,365
SHAREHOLDERS' EQUITY
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized and 1,884,051 shares
issued and outstanding (1,777,727 in 1995) 942,025 888,864
Capital in excess of stated value 30,459,168 27,136,543
Retained earnings 7,737,802 6,878,138
Unrealized net holding gains (losses) on securities
available for sale (518,564) 1,232,517
------------ ------------
Total Shareholders' Equity 38,620,431 36,136,062
------------ ------------
Total Liabilities and Shareholders' Equity $534,071,881 $483,170,427
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 7,591,231 $ 6,568,472 $21,995,899 $18,468,022
Securities 2,499,325 2,150,663 7,044,914 6,881,026
Federal funds sold 20,275 66,909 75,353 173,615
----------- ----------- ----------- -----------
Total interest income 10,110,831 8,786,044 29,116,166 25,522,663
Interest expense:
Deposits 5,237,378 4,683,196 14,946,819 13,489,236
Short-term borrowings 471,602 406,950 1,431,945 1,184,673
----------- ----------- ----------- -----------
Total interest expense 5,708,980 5,090,146 16,378,764 14,673,909
Net interest income 4,401,851 3,695,898 12,737,402 10,848,754
Provision for credit losses 240,000 240,000 680,000 750,000
----------- ----------- ----------- -----------
Net interest income after provision for credit losses 4,161,851 3,455,898 12,057,402 10,098,754
Other income:
Securities (losses)/gains, net (83,359) -- (55,433) 81,185
Other 272,234 190,707 710,210 539,003
----------- ----------- ----------- -----------
Total other income 188,875 190,707 654,777 620,188
Other expenses:
Salaries and employee benefits 1,182,914 1,008,201 3,382,253 2,861,416
FDIC premiums 500 (17,972) 1,500 378,484
Equipment 104,114 93,458 305,141 282,367
Taxes other than income 137,716 99,374 401,616 303,974
Courier services 121,003 151,588 358,097 321,037
Net occupancy 43,549 47,445 116,133 114,800
Other 684,158 490,094 1,925,207 1,477,174
----------- ----------- ----------- -----------
Total other expenses 2,273,954 1,872,188 6,489,947 5,739,252
Income before provision for federal income tax 2,076,772 1,774,417 6,222,232 4,979,690
Provision for federal income tax 658,000 566,000 1,976,000 1,589,000
----------- ----------- ----------- -----------
Net income $ 1,418,772 $ 1,208,417 $ 4,246,232 $ 3,390,690
=========== =========== =========== ===========
Net income per share $0.73 $0.63 $ 2.19 $ 1.86
=========== =========== =========== ===========
Average number of common shares and
common stock equivalents outstanding 1,937,205 1,925,005 1,939,536 1,818,193
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE> 5
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN UNREALIZED TOTAL
--------------------- EXCESS OF RETAINED NET HOLDING SHAREHOLDERS'
SHARES AMOUNT STATED VALUE EARNINGS GAINS/(LOSSES) EQUITY
--------- -------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,777,727 $888,864 $27,136,543 $ 6,878,138 $ 1,232,517 $36,136,062
Net income 4,246,232 $ 4,246,232
Change in unrealized gains and (losses),
net of tax (1,751,081) $(1,751,081)
6% Stock Dividend 106,324 53,161 3,322,625 (3,386,568) $ (10,782)
-----------------------------------------------------------------------------------
Balance at September 30, 1996 1,884,051 $942,025 $30,459,168 $ 7,737,802 $ (518,564) $38,620,431
===================================================================================
Balance at December 31, 1994 1,663,433 $831,717 $23,953,756 $ 4,852,695 $(2,073,575) $27,564,593
Net income 3,390,690 $ 3,390,690
Change in unrealized gains and (losses),
net of tax 2,375,822 $ 2,375,822
6% Stock Dividend 99,455 49,727 2,759,876 (2,819,518) ($9,915)
-----------------------------------------------------------------------------------
Balance at September 30, 1995 1,762,888 $881,444 $26,713,632 $ 5,423,867 $ 302,247 $ 33,321,190
===================================================================================
</TABLE>
See Accompanying Notes
5
<PAGE> 6
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 4,246,232 $ 3,390,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 680,000 750,000
Depreciation and amortization 222,222 214,866
Amortization and accretion of
security premiums and discounts (36,381) (74,951)
Loss (gain) on sale of securities 55,434 (81,185)
Deferred income taxes (231,200) (255,000)
Changes in assets and liabilities:
Increase in interest receivable
and other assets (1,442,709) (1,153,509)
Increase in interest payable
and other liabilities 1,054,838 1,493,982
------------ ------------
Total adjustments 302,204 894,203
------------ ------------
Net cash provided by operating activities 4,548,436 4,284,893
INVESTING ACTIVITIES:
Purchase of securities available for sale (57,525,503) (13,579,428)
Purchase of securities held to maturity -- (1,094,294)
Net increase in loans (29,983,627) (51,624,083)
Purchase of bank premises and equipment (160,212) (853,679)
Proceeds from maturities of securities held to maturity -- 2,295,905
Proceeds from maturities of securities available for sale 2,090,194 --
Proceeds from sales of securities available for sale 35,432,969 30,044,038
------------ ------------
Net cash used in investing activities (50,146,179) (34,811,541)
FINANCING ACTIVITIES:
Net increase in deposits 42,735,625 32,891,393
Net increase in short-term borrowings 4,626,622 2,905,958
Dividends paid on fractional shares (10,782) (9,915)
------------ ------------
Net cash provided by financing activities 47,351,465 35,787,436
------------ ------------
Increase in cash and cash equivalents 1,753,722 5,260,788
Cash and cash equivalents at beginning of period 13,047,891 10,846,733
------------ ------------
Cash and cash equivalents at end of period $ 14,801,613 $ 16,107,521
============ ============
Supplemental disclosures:
Interest paid $ 16,332,126 $ 12,496,980
Income taxes paid $ 2,225,000 $ 1,925,000
</TABLE>
See Accompanying Notes
6
<PAGE> 7
CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
The unaudited consolidated financial statements include the accounts of Capital
Holdings, Inc. (the Company) and its wholly owned subsidiaries, Capital Bank,
N.A. (the Bank) and CBNA Building Company, which is a real estate subsidiary
that owns and leases to the Bank, its only operating facility.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements. For further information refer to the consolidated
financial statements and notes thereto appearing in the Company's annual report
on Form 10-K for the year ended December 31, 1995.
Net income per share has been computed by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding, after
giving retroactive effect to a six percent stock dividend issued during June
1996 and June 1995.
The Bank's maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at September 30, 1996 was $118,122,000 and
$9,511,000, respectively, compared to $83,534,000 and $8,657,000, respectively,
at December 31, 1995. The increase in loan commitments is due to owner-occupied
real estate construction to take place within the next twelve months. Management
does not anticipate any significant losses as a result of these commitments.
7
<PAGE> 8
CAPITAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's primary asset is its subsidiary bank, which is in its eighth year
of operation. During the third quarter and for the nine months ended September
30, 1996, the Bank experienced moderate growth in net deposits. Deposits
increased $19,823,000 or 4.6% for the third quarter and $42,736,000 or 10.5% for
the nine months ended September 30, 1996.
Loan growth for the third quarter was $21,309,000 or 6.4% and $29,986,000 or
9.2% for the nine months ended September 30, 1996. The allowance for credit
losses at September 30, 1996, was $5,642,000 compared to $4,960,000 at December
31, 1995. The Bank had no write offs during the nine months ended September 30,
1996, and has nonperforming loans of less than 1% of total loans at September
30, 1996. Management considers the allowance to be adequate at this time. At
September 30, 1996, the Bank had no impaired loans. Effective January 1, 1995,
the Company adopted the provisions of Financial Accounting Standards Board
Statements No. 114 and No. 118 (FAS No. 114 and FAS No. 118), which relate to
accounting by creditors for loan impairment. The impact of these new
pronouncements was not material to the Company.
Securities available for sale totaled $157,957,000 or 29.6% of total assets at
September 30, 1996. The Bank continues to maintain very high investment quality
with 76.4% of total securities in U.S. Treasury and Agency securities. The Bank
has no high-risk on or off balance-sheet derivatives. The total market value of
the portfolio increased $979,000 (net of tax) during the third quarter. This is
a reflection of the increase in bond rates on both long and short-term security
maturities. During the first half of 1996, the Company repositioned
approximately 16% of the securities portfolio by selling callable and/or
short-term maturity securities, and investing in longer maturity securities to
take advantage of the increase in rates. The Bank's portfolio has a weighted
average life to maturity of approximately 2.3 years.
Consolidated net income for the third quarter of 1996 was $1,419,000 or $.73 per
share, and $4,246,000 or $2.19 per share for the nine months ended September 30,
1996, after giving retroactive effect to a six percent stock dividend issued
during June 1996. This compares to $1,208,000 or $.63 per share for the third
quarter of 1995, and $3,391,000 or $1.86 per share for the nine months ended
September 30, 1995, after giving retroactive effect to a six percent stock
dividend issued during June 1995. The increase in income before provision for
federal income taxes, excluding securities gains, for the nine months ended
September 30, 1996, represents a 30.0% increase over the same period of 1995.
This increase is a direct result of growth in earning assets and careful
attention to noninterest expenses. The income tax provision of 32% for the nine
months ended September 30, 1996, remained the same when compared to the same
period last year.
8
<PAGE> 9
CAPITAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The net interest margin continues to improve as deposit rates have decreased
slightly and the prime lending rate has stabilized. This trend should continue
for the next few months, however the repricing of maturing deposits will level
off and so should the net interest margin improvements.
Other expenses continue to increase as the Bank grows. Net overhead as a
percentage of average assets has increased only slightly from 1.73% for the year
ended December 31, 1995, to 1.74% for the nine months ended September 30, 1996.
Salaries and benefits represent 52.0% of other expenses for the third quarter of
1996 compared to 53.9% for the third quarter of 1995. Salary expense for the
nine months ended September 30, 1996, increased 18.2% over the same period for
1995. Staff levels have increased from 71 to 77 (full time equivalents) over the
past 12 months. Average assets per employee continues to increase to $6,712,000
at September 30, 1996, compared to $6,660,000 at December 31, 1995.
On August 8, 1995, The Federal Deposit Insurance Corporation (FDIC) voted to
reduce the premiums banks pay on deposits. The Bank's 1996 assessment rate is
zero; however, the FDIC has mandated that Bank's with a zero assessment rate
must pay a minimum semiannual assessment of $1,000.
The Tier I Capital ratio was 10.43%, the Total Capital ratio was 11.69%, and the
Leverage ratio was 7.58% at September 30, 1996, compared to regulatory capital
requirements of 4%, 8% and 4%, respectively. These ratios are well in excess of
the regulatory capital requirements.
Shareholders equity has continued to increase from retained earnings of net
income. The $1.8 million negative change in the unrealized gain on the
securities available for sale portfolio, net of tax, for the nine months ended
September 30, 1996, is due to the relative short average life of the bond
portfolio and the rising rates in the bond market for both short and long-term
security maturities.
9
<PAGE> 10
CAPITAL HOLDINGS, INC.
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended September
30, 1996.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements for 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 HOLDINGS, INC.
Date November 7, 1996 /s/ Michael P. Killian
---------------- ----------------------------------------
Michael P. Killian, Chief Financial Officer,
Senior Vice President
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 CAPITAL HOLDINGS, INC. FORM 10-Q AND SEPTEMBER 30, 1996 CAPITAL BANK,
N.A. CALL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,801,613
<INT-BEARING-DEPOSITS> 411,502,915
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 157,956,741
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 354,774,471
<ALLOWANCE> 5,642,377
<TOTAL-ASSETS> 534,071,881
<DEPOSITS> 450,357,148
<SHORT-TERM> 39,829,330
<LIABILITIES-OTHER> 5,264,972
<LONG-TERM> 0
<COMMON> 942,025
0
0
<OTHER-SE> 37,678,406
<TOTAL-LIABILITIES-AND-EQUITY> 534,071,881
<INTEREST-LOAN> 21,995,899
<INTEREST-INVEST> 7,044,914
<INTEREST-OTHER> 75,353
<INTEREST-TOTAL> 29,116,166
<INTEREST-DEPOSIT> 14,946,819
<INTEREST-EXPENSE> 16,378,764
<INTEREST-INCOME-NET> 12,737,402
<LOAN-LOSSES> 680,000
<SECURITIES-GAINS> (55,433)
<EXPENSE-OTHER> 6,489,947
<INCOME-PRETAX> 6,222,232
<INCOME-PRE-EXTRAORDINARY> 6,222,232
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,246,232
<EPS-PRIMARY> 2.19
<EPS-DILUTED> 2.19
<YIELD-ACTUAL> 3.57
<LOANS-NON> 225,849
<LOANS-PAST> 14,191
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,960,000
<CHARGE-OFFS> 0
<RECOVERIES> 2,377
<ALLOWANCE-CLOSE> 5,642,377
<ALLOWANCE-DOMESTIC> 4,816,698
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 825,679
</TABLE>
