<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 MARCH 31, 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 March 31, 1996, there were 1,777,727 shares of common stock outstanding.
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CAPITAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated balance sheets
March 31, 1996 and December 31, 1995 3
Consolidated statements of income
Three months ended March 31, 1996 and 1995 4
Consolidated statement of shareholders' equity
Three months ended March 31, 1996 and 1995 5
Consolidated statements of cash flows
Three months ended March 31, 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>
MARCH 31 DECEMBER 31
1996 1995
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ASSETS
<S> <C> <C>
Cash and due from banks $ 12,722,798 $ 13,047,891
Federal funds sold
------------- -------------
Total cash and cash equivalents 12,722,798 13,047,891
Investment Securities Available for sale, at fair value 144,798,517 140,626,604
Loans 328,712,547 324,788,467
Less: Allowance for credit losses 5,170,000 4,960,000
------------- -------------
Net loans 323,542,547 319,828,467
Bank premises and equipment 4,462,936 4,483,154
Interest receivable and other assets 6,720,820 5,184,311
------------- -------------
Total Assets $492,247,618 $483,170,427
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $378,541,255 $368,109,187
Noninterest bearing 30,812,739 39,512,336
------------- -------------
Total deposits 409,353,994 407,621,523
Short-term borrowings 41,838,485 35,202,708
Interest payable and other liabilities 4,692,894 4,210,134
------------- -------------
Total Liabilities 455,885,373 447,034,365
SHAREHOLDERS' EQUITY
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized and 1,777,727 shares
issued and outstanding (1,777,727 in 1994) 888,864 888,864
Capital in excess of stated value 27,136,543 27,136,543
Retained earnings 8,244,370 6,878,138
Unrealized net holding gains (losses) on securities available for sale 92,468 1,232,517
------------- -------------
Total Shareholders' Equity 36,362,245 36,136,062
------------- -------------
Total Liabilities and Shareholders' Equity $492,247,618 $483,170,427
============= =============
</TABLE>
3
See Accompanying Notes
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CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
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<S> <C> <C>
Interest income:
Loans, including fees $7,135,601 $5,672,660
Securities 2,219,276 2,462,518
Federal funds sold 8,209 15,893
------------------- -------------------
Total interest income 9,363,086 8,151,071
Interest expense:
Deposits 4,825,083 4,224,681
Short-term borrowings 504,795 376,373
------------------- -------------------
Total interest expense 5,329,878 4,601,054
Net interest income 4,033,208 3,550,017
Provision for credit losses 210,000 270,000
------------------- -------------------
Net interest income after provision for credit losses 3,823,208 3,280,017
Other income:
Securities gains, net 26,523 11,426
Other 200,308 183,782
------------------- -------------------
Total other income 226,831 195,208
Other expenses:
Salaries and employee benefits 1,071,655 915,186
FDIC premiums 500 198,228
Equipment 99,606 93,056
Taxes other than income 132,000 103,900
Courier services 116,430 59,157
Net occupancy 35,565 31,688
Other 577,051 506,623
------------------- -------------------
Total other expenses 2,032,807 1,907,838
Income before provision for federal income tax 2,017,232 1,567,387
Provision for federal income tax 651,000 502,000
------------------- -------------------
Net income $1,366,232 $1,065,387
=================== ===================
Net income per share $0.75 $0.59
=================== ===================
Average number of common shares and
common stock equivalents outstanding 1,830,881 1,819,307
=================== ===================
</TABLE>
See Accompanying Notes
4
<PAGE> 5
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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 1,366,232 $ 1,366,232
Change in unrealized gains and (losses), net of tax (1,140,049) ($1,140,049)
-------------------------------------------------------------------------------
Balance at March 31, 1996 1,777,727 $888,864 $27,136,543 $8,244,370 $ 92,468 $36,362,245
===============================================================================
Balance at December 31, 1994 1,663,433 $831,717 $23,953,756 $4,852,695 ($2,073,575) $27,564,593
Net income 1,065,387 $ 1,065,387
Change in unrealized gains and (losses), net of tax 1,375,410 $ 1,375,410
-------------------------------------------------------------------------------
Balance at March 31, 1995 1,663,433 $831,717 $23,953,756 $5,918,082 ($698,165) $30,005,390
===============================================================================
</TABLE>
See Accompanying Notes
5
<PAGE> 6
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
------------------------ ------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 1,366,232 $ 1,065,387
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 210,000 270,000
Depreciation and amortization 73,397 71,963
Amortization and accretion of security premiums and discounts (10,243) (24,684)
Gain on sale of securities (26,522) (11,426)
Deferred income taxes (71,400) (91,800)
Changes in assets and liabilities:
Increase in interest receivable and other assets (877,813) (1,366,011)
Increase in interest payable and other liabilities 482,760 387,044
------------------------ ------------------------
Total adjustments (219,821) (764,914)
------------------------ ------------------------
Net cash provided by operating activities 1,146,411 300,473
INVESTING ACTIVITIES:
Purchase of securities available for sale (29,429,089) (39,550)
Net increase in loans (3,924,080) (16,211,263)
Purchase of bank premises and equipment (53,179) (54,278)
Proceeds from maturities of securities held to maturity -- 505,449
Proceeds from maturities of securities available for sale 546,299 --
Proceeds from sales of securities available for sale 23,020,297 5,995,625
------------------------ ------------------------
Net cash used in investing activities (9,839,752) (9,804,017)
FINANCING ACTIVITIES:
Net increase in deposits 1,732,471 14,312,323
Net increase (decrease) in short-term borrowings 6,635,777 (118,094)
Issuance of common stock
Dividends paid on fractional shares
------------------------ ------------------------
Net cash provided by financing activities 8,368,248 14,194,229
------------------------ ------------------------
(Decrease) increase in cash and cash equivalents (325,093) 4,690,685
Cash and cash equivalents at beginning of period 13,047,891 10,846,733
------------------------ ------------------------
Cash and cash equivalents at end of period $12,722,798 $15,537,418
======================== ========================
Supplemental disclosures:
Interest paid $ 5,284,996 $ 4,601,054
Income taxes paid $ 150,000 $ 150,000
</TABLE>
See Accompanying Notes
6
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CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 1995.
The Bank's maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at March 31, 1996 was $97,754,000 and $9,205,000,
respectively, compared to $83,534,000 and $8,657,000, respectively, at December
31, 1995. 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 seventh year
of operation. For the three months ended March 31, 1996, the Bank experienced
nominal growth in net deposits, which is typical of first quarter growth in
previous years. Deposits increased $1,732,000 or .4% during the first quarter of
1996.
Loan growth for the first quarter of 1996 was $3,924,000 or 1.2%. The allowance
for credit losses at March 31, 1996, was $5,170,000 compared to $4,960,000 at
December 31, 1995. The Bank had no write offs during the three months ended
March 31, 1996, and has nonperforming loans of less than 1% of total loans at
March 31, 1996. Management considers the allowance to be adequate at this time.
At March 31, 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 $144,799,000 or 29.4% of total assets at
March 31, 1996. The Bank continues to maintain very high investment quality with
76.5% of total securities in U.S. Treasury and Agency securities. The Bank has
no high-risk on balance-sheet derivatives. Fair values of the securities
available for sale portfolio continue to be above their amortized cost during
the first quarter of 1996. However the total market value of the portfolio
declined $1,141,000 (net of tax) during the first quarter. This is a reflection
of the increase in bond rates on both long and short-term security maturities.
During the first quarter, 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 2.2 years.
Consolidated net income for the first quarter of 1996 was $1,366,000 or $.75 per
share. This compares to $1,065,000 or $.59 per share for the first quarter of
1995, after giving retroactive effect to a six percent stock dividend issued
during 1995. The increase in income before provision for federal income taxes,
excluding securities gains, for the three months ended March 31, 1996,
represents a 27.1% 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 first quarter of 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.
Other expenses continue to increase as the Bank grows. However, net overhead as
a percentage of average assets has decreased from 1.73% for the year ended
December 31, 1995, to 1.70% for the three months ended March 31, 1996. Salaries
and benefits represent 52.7% of other expenses for the first quarter of 1996
compared to 48.0% for the first quarter of 1995. Salary expense for the three
months ended March 31, 1996, increased 17.1% over the same period for 1995.
Staff levels have increased from 60 to 72 (full time equivalents) over the past
12 months. Average assets per employee continues to increase to $6,781,000 at
March 31, 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 10.09%, the Total Capital ratio was 11.56%, and the
Leverage ratio was 7.37% at March 31, 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 $1.1 million negative change in the unrealized gain on the
securities available for sale portfolio, net of tax, for the first quarter of
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
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CAPITAL HOLDINGS, INC.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
Exhibit 27 - Financial Data Schedule
b.) Reports on Form 8-K
No exhibits or reports on Form 8-K were filed for the quarter ended
March 31, 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 5/3/96 /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 MARCH 31,
1996 CAPITAL HOLDINGS, INC. FORM 10Q AND MARCH 31, 1996 CAPITAL BANK, N.A.
CALL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12722798
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 144798517
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 328712547
<ALLOWANCE> 5170000
<TOTAL-ASSETS> 492247618
<DEPOSITS> 409353994
<SHORT-TERM> 41838485
<LIABILITIES-OTHER> 4692894
<LONG-TERM> 0
<COMMON> 888864
0
0
<OTHER-SE> 35473381
<TOTAL-LIABILITIES-AND-EQUITY> 492247618
<INTEREST-LOAN> 7135601
<INTEREST-INVEST> 2219276
<INTEREST-OTHER> 8209
<INTEREST-TOTAL> 9363086
<INTEREST-DEPOSIT> 4825083
<INTEREST-EXPENSE> 5329878
<INTEREST-INCOME-NET> 4033208
<LOAN-LOSSES> 210000
<SECURITIES-GAINS> 26523
<EXPENSE-OTHER> 2032807
<INCOME-PRETAX> 2017232
<INCOME-PRE-EXTRAORDINARY> 2017232
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1366232
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 3.513
<LOANS-NON> 135000
<LOANS-PAST> 50000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4960000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 5170000
<ALLOWANCE-DOMESTIC> 3663785
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1506215
</TABLE>
