<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X 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, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 33-46573
--------
CAPITAL HOLDINGS, INC.
----------------------
(Exact name of Registrant as specified in its Charter)
OHIO 34-1588902
---- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
5520 MONROE ST., SYLVANIA, OH 43560
-----------------------------------
(Address of principal executive offices, including zip code)
(419) 885-7379
--------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 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
---
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 7, 1997 was $71,194,875.
The number of shares of Registrant's Common Stock outstanding on March
7, 1997 was 1,898,530.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Annual Report to Shareholders for fiscal year ended December 31, 1996 - Parts II
and IV.
Definitive Proxy Statement for the Annual Meeting of Shareholders to be
held April 17, 1997 - Part III.
<PAGE> 2
CAPITAL HOLDINGS, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I
<S> <C> <C>
Item 1. Business.............................................................................3
Item 2. Properties...........................................................................4
Item 3. Legal Proceedings....................................................................4
Item 4. Submission of Matters to a Vote of Security Holders..................................4
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.........................................................4
Item 6. Selected Financial Data..............................................................5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................6
Item 8. Financial Statements and Supplementary Data.........................................18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.....................................20
PART III
Item 10. Directors and Executive Officers of the Registrant..................................20
Item 11. Executive Compensation..............................................................20
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................................20
Item 13. Certain Relationships and Related Transactions......................................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................21
Signatures............................................................................................22
</TABLE>
<PAGE> 3
PART I.
ITEM 1. BUSINESS
- ------- --------
GENERAL
- -------
Capital Holdings, Inc. (the "Company") is a one-bank holding company
with headquarters in Sylvania, Ohio. The Company was formed in July, 1988, for
the purpose of owning and organizing Capital Bank, N.A. (the "Bank"), a national
banking association which is a wholly-owned subsidiary of the Company.
The Bank opened for business on August 24, 1989, with $12.4 million in
equity capital contributed by the Company. As of December 31, 1996, the total
assets of the Bank were $559.2 million with equity capital of $30.5 million. On
December 31, 1996, the Bank paid the parent Company a $10.0 million cash
dividend, thereby reducing its equity. See "Capital Resources and Dividends"
narrative in Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion.
The Bank has focused its business on corporate, executive and
professional customers while pursuing a deposit gathering strategy of offering
money market checking and savings accounts in addition to certificates of
deposits at attractive rates to mid-sized to large depositors with an emphasis
of minimizing the operating costs of obtaining these deposits.
The Bank is located in Sylvania, Ohio, a suburban community northwest
of Toledo, Ohio. In addition to drawing customers from Sylvania, the Bank also
draws customers from Southeast Michigan as well as Lucas and Wood counties in
Ohio. The Bank has defined its market niche as serving small to mid-sized
businesses, professionals and their families.
The Company owns its main office facility located at 5520 Monroe
Street, Sylvania, Ohio through a wholly-owned subsidiary, CBNA Building Company.
The Company and the Bank operate no other offices.
COMPETITION
- -----------
The Bank's primary competition for banking services comes from other
financial institutions located in Lucas and Wood counties. There are currently
13 commercial banks, 6 savings and loans and 50 credit unions believed to be
operating physical facilities in these counties. Many of these institutions are
affiliates of companies which have significantly greater assets than the Bank.
As of June 30, 1996 (the most recent date for which information is readily
available), total deposits held by financial institutions in Lucas and Wood
counties approximated $6.8 billion. Since its opening on August 24, 1989, the
Bank has grown from $12.4 million in assets to $559.2 million in assets as of
December 31, 1996. The management of the Bank believes the primary reason for
the Bank's success in deposit and loan growth is tied directly to its niche
orientation, and the fact that its products are delivered through highly
personalized service, as well as being very competitive with other financial
institutions in its market area.
EMPLOYEES
- ---------
The Company's primary purpose is to operate as a bank holding company
for its bank subsidiary, Capital Bank, N.A. Therefore, the Company has no
compensated employees. As of December 31, 1996, the Bank had 78 full-time
equivalent employees, which represents a 500% increase in staff since the Bank
opened in August of 1989 with 13 full-time equivalent employees. None of the
employees are covered by a collective bargaining agreement.
REGULATION
- ----------
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956 (the "Banking Act") as amended, and as such is subject to
regulation by the Federal Reserve Board. A bank holding company is required to
file with the Federal Reserve Board annual reports and other information
regarding its business operations and those of its subsidiaries. A bank holding
company and its subsidiary banks are also subject to examination by the Federal
Reserve Board.
The Bank is regulated by the Office of the Comptroller of the Currency
("OCC") as a National Banking Association. Additionally, the Bank is regulated
by the Board of Governors of the Federal Reserve System ("FRS") as a member of
the Federal Reserve System. The regulatory agencies have the authority to
regularly examine the Bank and the Bank is subject to the regulations
promulgated by its supervisory agencies. In addition, the deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") and,
therefore, the Bank is subject to FDIC regulations.
<PAGE> 4
ITEM 2. PROPERTIES
- ------- ----------
The Company, through its wholly-owned subsidiary, CBNA Building
Company, owns real estate at 5520 Monroe Street which includes a 25,000 square
foot main office facility. The building expansion of an additional 25,000 square
feet was started in the third quarter of 1996 with final occupancy to be in the
second quarter of 1997. The facility provides the Bank with Class A office space
and all necessary technological supports to operate an effective, personalized
bank which meets the goals of the Company and the Bank. Management of the
Company and Bank as well as the respective Boards of Directors of these
organizations, believe that the facility will be sufficient for expected growth
in the Bank for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company and the Bank from time to time become involved in such
legal proceedings as are incurred in and incidental to the ordinary course of
business. In the opinion of management, any losses resulting from such
proceedings will not be material to the financial condition, liquidity, or
results of operations of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
NONE.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
- ------- -------------------------------------------------------------
MATTERS
-------
There is no established public market for the common stock of the
Company.
There were 786 shareholders of record as of March 7, 1997.
No cash dividends have been paid on the Company's common stock. The
ability of the Company to pay cash dividends is dependent in large part on the
ability of the Bank to pay dividends to the Company. The Bank is a national
banking association and, as such, is subject to restrictions and limitations on
the amount and timing of the dividends it may pay pursuant to the national
banking laws and regulations. See "Liquidity" narrative in Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further discussion.
Valuation of the Company's Common Stock is performed by an independent
financial consulting firm experienced in appraisals of commercial banks and bank
holding companies. The fair value of the Company's Common Stock was $37.50,
$29.95 and $25.14 per share at December 31, 1996, 1995 and 1994, respectively,
after giving retroactive effect to a 6% stock dividend issued during 1996, 1995
and 1994.
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
AS OF AND FOR THE YEAR-ENDED DECEMBER 31
1996 1995 1994 1993 1992
------------ ------------- ------------- ----------- --------------
CONSOLIDATED RESULTS
OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Interest income $39,639 $34,752 $26,330 $19,508 $15,352
Interest expense 22,305 19,964 13,188 9,261 7,837
------------ ------------- ------------- ----------- --------------
Net interest income 17,334 14,788 13,142 10,247 7,515
Provision for credit losses 980 850 993 920 908
------------ ------------- ------------- ----------- --------------
Net interest income after
provision for credit losses 16,354 13,938 12,149 9,327 6,607
Other income 874 753 636 589 503
Other expense 8,821 7,590 6,860 5,612 4,404
------------ ------------- ------------- ----------- --------------
Income before income taxes 8,407 7,101 5,925 4,304 2,706
Income taxes 2,681 2,256 1,844 1,362 908
------------ ------------- ------------- ----------- --------------
Net income $5,726 $4,845 $4,081 $2,942 $1,798
------------ ------------- ------------- ----------- --------------
CONSOLIDATED BALANCE
SHEET DATA:
Total assets $559,726 $483,170 $417,832 $322,517 $245,974
Cash and cash equivalents 13,958 13,048 10,847 5,730 11,131
Securities available for sale (1) 159,209 140,627 77,982 54,318 6,062
Securities held to maturity - - 71,920 63,945 83,176
Loans, net of deferred loan fees 380,160 324,788 251,184 194,870 141,124
Allowance for credit losses 5,942 4,960 4,110 3,117 2,249
Deposits 470,743 407,622 357,533 262,732 203,455
Shareholders' equity 41,590 36,136 27,565 26,947 21,875
PER SHARE DATA (2):
Net income $2.93 $2.51 $2.15 $1.57 $1.13
Book value at period end 21.92 19.18 14.75 14.56 11.94
Average shares outstanding 1,957,091 1,926,883 1,900,676 1,872,224 1,590,865
<FN>
(1) The Company adopted Financial Accounting Standards No. 115 in 1993. See
"Securities" narrative in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(2) Per Share amounts are based upon year-end shares outstanding for each
period for book value and on weighted-average shares outstanding for net
income, after giving retroactive effect to a 6% stock dividend issued
during 1996, 1995, 1994 and 1993.
</TABLE>
<PAGE> 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following narrative presents Management's discussion and analysis
of the Company's financial position and results of operations for the past three
years. The objective of this financial review is to enhance the reader's
understanding of the accompanying tables, consolidated financial statements, the
related notes thereto, and statistical information presented elsewhere in this
report.
The Company was organized in July 1988 and commenced banking operations
in August 1989. The Company achieved profitable operations during 1990 and
continued to experience significant growth in assets, deposits and profitability
during the three years ended December 31, 1996.
RESULTS OF OPERATIONS
---------------------
NET INTEREST INCOME
- -------------------
Net interest income, the difference between revenue generated from
earning assets and the interest cost of funding those assets, is the Company's
primary source of earnings. Net interest income increased 17%, 13% and 28% in
1996, 1995 and 1994, respectively. TABLE 1 is an analysis of factors affecting
this change. TABLE 2 sets forth an analysis of the changes in interest earned
and interest paid resulting from changes in volume and rates during each of the
two years in the period ended December 31, 1996. Net interest margin (net
interest income divided by average earning assets) was 3.59% for 1996, 3.54% for
1995 and 3.81% for 1994. During 1996, the floating rate loan portfolio remained
level, with the same relative change occurring in deposit pricing. The one-year
Treasury note rate increased from 5.14% at December 31, 1995, to 5.48% at
December 31, 1996. The marginal increase in net interest margin from 1995 to
1996 is due to increased volume.
Average loans outstanding increased 20%, 31% and 33% in 1996, 1995 and
1994, respectively. Average yield on these loans was 8.79%, 8.98% and 8.19%,
respectively. The changes in yield are reflective of the change in market rates
and the refinancing opportunities available during these periods. Securities
represent 30% of the total average earning assets of the Company at December 31,
1996, and the average yields were 6.65%, 6.71% and 6.54% as of December 31,
1996, 1995 and 1994, respectively. The changes in yield are due to changes in
market rates and portfolio mix.
Average total interest bearing liabilities increased to $432 million in
1996 compared with $376 million in 1995 and $310 million in 1994. The average
cost of interest bearing liabilities was 5.17%, 5.30% and 4.25% for the same
periods. The decrease in yield is a direct reflection of the increased volume
and favorable rate environment within the deposit portfolio.
<PAGE> 7
TABLE 1 - CONSOLIDATED AVERAGE BALANCE SHEETS AND
ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- ---------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED OR YIELD OR AVERAGE EARNED OR YIELD OR AVERAGE EARNED OR YIELD OR
BALANCE PAID COST BALANCE PAID COST BALANCE PAID COST
----------------------------------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Securities:
Taxable $136,202 $ 8,915 6.55% $126,943 $ 8,386 6.61% $122,560 $ 7,878 6.43%
Tax exempt 13,321 1,035 7.77% 13,121 1,017 7.75% 11,702 902 7.71%
Loans 340,035 29,899 8.79% 283,577 25,466 8.98% 216,702 17,751 8.19%
Federal funds sold 2,660 142 5.34% 3,873 229 5.91% 2,436 105 4.31%
---------------------- ------------------- --------------------
Total Interest Earning Assets 492,218 39,991 8.12% 427,514 35,098 8.21% 353,400 26,636 7.54%
Noninterest Earning Assets:
Cash and due from banks 10,641 9,593 8,418
Bank premises and
equipment-net 4,797 4,211 3,920
Other assets 6,051 5,662 4,567
Less allowance for credit losses (5,380) (4,574) (3,590)
----------- ----------- -----------
$508,327 $442,406 $366,715
----------- ----------- -----------
Interest Bearing Liabilities:
Interest checking $ 99,839 3,799 3.81% $ 89,608 3,728 4.16% $ 62,541 2,142 3.42%
Savings deposits 19,449 566 2.91% 20,729 674 3.25% 32,162 974 3.03%
Time deposits 278,101 16,086 5.78% 236,607 13,897 5.87% 190,170 8,989 4.73%
Short-term borrowings 34,423 1,854 5.39% 29,457 1,665 5.65% 25,463 1,082 4.25%
---------------------- --------------------- --------------------
Total Interest Bearing Liabilities 431,812 22,305 5.17% 376,401 19,964 5.30% 310,336 13,187 4.25%
Noninterest Bearing Liabilities:
Demand deposits 35,307 31,282 27,419
Other 3,517 3,054 2,099
----------- ------------ -----------
Total Liabilities 470,636 410,737 339,854
Shareholders' Equity 37,691 31,669 26,861
----------- ------------ -----------
$508,327 $442,406 $366,715
----------- ------------ -----------
Net Interest Income $17,686 $15,134 $13,449
----------- --------- ---------
Net Yield on Interest Earning Assets 3.59% 3.54% 3.81%
------ ------- ------
</TABLE>
NOTE: Nonaccrual loans are included in average loan balances. Interest
income includes the effect of tax equivalent adjustments
amounting to $352 in 1996, $346 in 1995 and $306 in 1994, using a
34% tax rate. This rate is based upon the statutory rate and is
not necessarily intended to represent the Company's effective or
incremental rate.
<PAGE> 8
TABLE 2 - ANALYSIS OF NET INTEREST INCOME CHANGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) INCREASE (DECREASE)
---------------------------------- ---------------------------------------
VOLUME RATE NET VOLUME RATE NET
---------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest on Earning Assets:
Securities $620 ($73) $547 $395 $228 $623
Loans 4,960 (527) 4,433 5,878 1,837 7,715
Federal funds sold (67) (20) (87) 76 48 124
--------------------------------- ---------------------------------------
Total Interest Income Changes $5,513 ($620) $4,893 $6,349 $2,113 $8,462
--------------------------------- ---------------------------------------
Expense on Interest Bearing Liabilities:
Deposits $2,621 ($469) $2,152 $3,161 $3,033 $6,194
Short-term borrowings 260 (71) 189 188 395 583
--------------------------------- ---------------------------------------
Total Interest Expense Changes $2,881 ($540) $2,341 $3,349 $3,428 $6,777
--------------------------------- ---------------------------------------
</TABLE>
NOTE: The change in interest not due solely to volume or rate has been
allocated between the factors in proportion to the absolute
dollar amounts of the change in each. Changes in securities
reflect taxable equivalent adjustments.
<PAGE> 9
PROVISION FOR CREDIT LOSSES
- ---------------------------
The provision for credit losses was $980,000, $850,000 and $993,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
Management maintains the allowance for credit losses at a level
adequate to absorb potential future losses. The evaluation performed is based
upon a continuous review of historical credit loss experience, specifically
identified problem loans, composition and growth of the loan portfolio, current
and projected economic conditions and other pertinent factors.
Due to its focus on credit quality, the Company has experienced minimal
problems with asset quality and loan charge-offs. The Company has had three
consecutive years of no loan charge-offs and a total of only $216,000 in
charge-offs since its inception. Additional information regarding the provision
and allowance for credit losses is contained in the "Earning Assets" narrative.
OTHER INCOME
- ------------
Other income consists primarily of securities gains and losses, service
fees on deposit accounts and other service fees. Total other income of
approximately $874,000 for 1996 increased approximately $121,000 or 16% when
compared to 1995 and 19% when 1995 is compared to 1994. Securities transactions
resulted in net (losses) gains of approximately ($55,000), $81,000 and $77,000
in 1996, 1995 and 1994, respectively. Service charges on deposit accounts were
approximately $253,000, $252,000 and $230,000 in 1996, 1995 and 1994,
respectively.
OTHER EXPENSES
- --------------
Noninterest expense increased 16% in 1996 and 11% in 1995. Salaries and
benefits, which accounted for 53% and 49% of noninterest expense in 1996 and
1995, increased by 24% in 1996 and 16% in 1995. Full-time equivalent employees
increased 22% in 1996 and 19% in 1995. Management continues to control overhead
expense without impairing the quality of service provided to customers.
Operating from a single location has proven both efficient and effective. The
Company's total assets per employee approximated $7.2 million and $7.5 million
at December 31, 1996 and 1995, respectively; this compares very favorably to
banks of similar asset size.
The Company's efficiency ratio, computed by dividing other expenses by
net interest income plus other income, was 48.4% for 1996 and 48.8% for 1995.
This low ratio is indicative of efficient overhead cost control.
During 1996, the assessment paid by the Company to the Federal Deposit
Insurance Corporation (FDIC) decreased substantially due to an August 1995 FDIC
vote to reduce premiums banks pay on deposits. The Company's assessment for 1996
was lowered to $2,000 annually. The Company is currently being assessed the
lowest premium rate established by the FDIC because it is classified in the
highest capital rating category.
In 1996, occupancy costs increased 6% over 1995 levels, due to the
building expansion started in late 1996.
PROVISION FOR FEDERAL INCOME TAXES
- ----------------------------------
The Federal income tax expense was $2,681,000, $2,256,000 and
$1,844,000 in 1996, 1995 and 1994, respectively. During each of these years, the
Company realized tax savings from the purchase of tax-free municipal bonds and
from a tax-exempt loan. The effective tax rate was 31.9%, 31.8% and 31.1% in
1996, 1995 and 1994, respectively.
FINANCIAL CONDITION
-------------------
The following discussions address key elements of financial condition,
including earning assets, the sources of funds supporting earning assets, credit
quality and experience, asset and liability management, and capital adequacy.
<PAGE> 10
EARNING ASSETS
--------------
LOANS
- -----
Loans comprised 69%, 66% and 61% of the Company's average earning
assets in 1996, 1995 and 1994, respectively. Loan volume and quality continue to
be strong as the Company grows. The increase in net loans outstanding over the
prior year was $54 million, $73 million and $55 million in 1996, 1995 and 1994,
respectively.
The commercial loan portfolio represents loans to business interests,
located primarily within the Company's defined market area, with no significant
industry concentration. The residential real estate portfolio is primarily
adjustable rate mortgages that qualify for sale into the secondary market;
however, the Company has chosen to retain all residential mortgage loans in its
portfolio.
TABLES 3 and 4 show the composition of the loan portfolio at the end of
each of the last five years and the loan maturities and rate sensitivities at
December 31, 1996.
TABLE 3 - LOAN PORTFOLIO AT DECEMBER 31
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $79,492 $ 74,347 $ 59,290 $ 47,893 $ 38,741
Real Estate:
Residential-first mortgage 86,750 70,969 56,168 47,710 37,112
Commercial-owner occupied 76,673 70,121 54,480 47,195 29,946
Commercial-investment 105,275 78,531 57,553 32,981 20,425
------- -------- -------- -------- --------
268,698 219,621 168,201 127,886 87,483
Consumer 26,995 25,653 22,757 18,205 15,116
Other 5,614 5,767 1,533 1,433 256
-------- --------- --------- --------- ---------
Total Loans 380,799 325,388 251,781 195,417 141,596
Less deferred loan fees 639 600 597 547 472
--------- --------- ---------- ---------- ---------
Total loans net of
deferred loan fees 380,160 324,788 251,184 194,870 141,124
Less allowance for
credit losses 5,942 4,960 4,110 3,117 2,249
--------- ---------- ---------- ---------- ----------
Net Loans $374,218 $319,828 $247,074 $191,753 $138,875
======== ======== ======== ======== ========
</TABLE>
<PAGE> 11
The maturity distribution and sensitivity to interest rates of the loan
portfolio are two factors in management's evaluation of the risk characteristics
and the future profitability of the portfolio.
TABLE 4 - LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN 1 - 5 OVER 5
1 YEAR YEARS YEARS TOTAL
------ ----- ----- -----
<S> <C> <C> <C> <C>
Loan maturities by type (A,C):
Commercial $ 38,551 $ 32,758 $ 8,183 $ 79,492
Real Estate:
Residential-first mortgage 4,027 1,779 80,944 86,750
Commercial-owner occupied 2,583 17,620 56,470 76,673
Commercial-investment 18,936 22,689 63,650 105,275
-------- -------- -------- --------
25,546 42,088 201,064 268,698
Consumer 17,503 7,016 2,476 26,995
Other 277 - 5,337 5,614
-------- ------- -------- --------
TOTAL $ 81,877 $ 81,862 $217,060 $380,799
======== ======== ======== ========
Rate Sensitivities (B,C):
Fixed Rate Loans $ 30,144 $202,378 $ 23,290 $255,812
Variable Rate Loans 124,987 - - 124,987
-------- -------- --------- --------
TOTAL $155,131 $202,378 $ 23,290 $380,799
======== ======== ======== ========
Percent of Total 40.74% 53.14% 6.12% 100.00%
======== ======== ======== ========
<FN>
(A) Maturities based on ending contractual maturity dates.
(B) Loans are reported at the earliest of maturity or repricing opportunity.
(C) Occasionally extensions or renewals of loan obligations are requested.
These are reviewed on an individual basis and granted if deemed
appropriate. Such extensions, however, do not materially alter the
anticipated loan maturity tables as reported.
</TABLE>
The Bank's credit policy establishes guidelines to manage credit risk
and asset quality. These guidelines include loan review and early identification
of problem loans to ensure sound credit decisions. The Bank's credit policies
and procedures are meant to minimize the risk and uncertainties inherent in
lending. In following these policies and procedures, management must rely on
estimates, appraisals and evaluations of loans and the possibility that changes
in these could occur quickly because of changing economic conditions.
Nonperforming assets consist of loans on nonaccrual and loans over
90-days past due as to principal and interest and still in an accrual status.
Nonaccrual loans are loans which are 90-days past due and with respect to which,
in management's opinion, collection of interest is doubtful. These loans no
longer accrue interest and are accounted for on a cash basis. Loans which are
90-days or more past due and still accruing interest are loans which, in
management's opinion, are well secured and are in the process of collection.
Nonperforming loans amounted to $454,000, $138,000, $25,000 and $220,000 at
December 31, 1996, 1995, 1994 and 1993, respectively, which consistently
represents less than .10% of total loans for the same periods.
Potential problem loans are those loans which are on the Bank's "Watch
List" and exhibit characteristics that could cause the loans to become
nonperforming or require restructuring in the future. Management reviews this
list regularly and adjusts for changing conditions.
<PAGE> 12
TABLE 5 is a summary of credit loss experience for the five years ending
December 31, 1996.
TABLE 5 - ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,960 $ 4,110 $ 3,117 $ 2,249 $ 1,457
Loans charged off:
Commercial - - - - (56)
Residential real estate - - - (25) -
Consumer and other - - - (27) (60)
-------- -------- -------- --------- ---------
Total loans charged off - - - (52) (116)
Recoveries:
Consumer and other 2 - - - -
-------- -------- -------- --------- ---------
Total recoveries 2 - - - -
Net loans charged off - - - (52) (116)
Provision for credit losses 980 850 993 920 908
-------- -------- -------- --------- ---------
Balance at end of year $ 5,942 $ 4,960 $ 4,110 $ 3,117 $ 2,249
======== ======== ======== ========= =========
Total loans outstanding at year-end $380,799 $325,388 $251,781 $ 195,417 $ 141,596
======== ======== ======== ========= =========
Average loans $340,035 $283,577 $216,702 $ 163,313 $ 118,829
======== ======== ======== ========= =========
As a percent of average loans:
Net charge-offs N/A N/A N/A 0.03% 0.10%
Provision for credit losses 0.29% 0.30% 0.46% 0.56% 0.76%
As a percent of total loans outstanding
at year-end:
Year-end allowance for credit losses 1.56% 1.52% 1.64% 1.60% 1.59%
</TABLE>
<PAGE> 13
TABLE 6 is an allocation of the allowance for credit losses for the five years
ended December 31, 1996:
TABLE 6 - ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------------- --------------- --------------- ------------- -------------
% OF % OF % OF % OF % OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
AMT TTL LOANS AMT TTL LOANS AMT TTL LOANS AMT TTL LOANS AMT TTL LOANS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 720 21% $ 957 23% $ 774 23% $ 996 25% $ 780 27%
Real Estate:
Residential - first mortgage 240 23% 179 22% 140 22% 126 24% 133 26%
Commercial - owner occupied 542 20% 422 22% 310 22% 280 24% 186 21%
Commercial - investment 1,263 28% 844 24% 624 23% 368 17% 112 15%
----- --- ------ ---- ------ ---- ------ ---- ------ ----
2,045 71% 1,445 68% 1,074 67% 774 65% 431 62%
Consumer and other 293 8% 318 9% 228 10% 184 10% 113 11%
------ ----- ------ ---- ------ ---- ------ ---- ------ ----
Total allocated 3,058 100% 2,720 100% 2,076 100% 1,954 100% 1,324 100%
==== ==== ==== ==== ====
Total unallocated 2,884 2,240 2,034 1,163 925
------ ------ ------ ------ ------
Total $5,942 $4,960 $4,110 $3,117 $2,249
====== ====== ====== ====== ======
</TABLE>
The loan portfolio contains no foreign loans nor any concentration to
identified borrowers engaged in the same or similar industries exceeding 10% of
total loans.
SECURITIES
- ----------
During December 1993, the Company elected to adopt Financial Accounting
Standards Board Standard No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (FAS No. 115). Securities available for sale are stated
at fair value, with the unrealized gains and losses, net of income tax, reported
as a separate component of shareholders' equity. The unrealized gain recorded at
December 31, 1996, approximated $531,000 (net of $273,000 in deferred income
taxes). The unrealized gain recorded at December 31, 1995, approximated
$1,233,000 (net of $635,000 in deferred income taxes). An unrealized loss
approximating $2,074,000 (net of $1,068,000 in deferred income taxes) was
recorded at December 31, 1994. The designation of such securities is made by
management based upon liquidity needs at the time of purchase. There was no
designation of securities as available for sale prior to 1992.
In November of 1995, the Financial Accounting Standards Board issued "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities" (the Guide). In implementing the Guide, a one
time opportunity was available for a company to reassess its securities
classifications and transfer any or all held to maturity securities to available
for sale. In accordance with the provisions of the Guide, the Company elected to
transfer all of its held to maturity investment securities at December 28, 1995,
to available for sale, at fair value of approximately $67.3 million.
The securities available for sale (SAFS) portfolio at December 31,
1996, is composed primarily of U.S. Treasury (19.7%) and U.S. Government Agency
Securities (58.4%). The remaining 21.9% is composed of certain other securities.
The quality of this portfolio is 85% AAA rated bonds with an average maturity of
2.2 years. The SAFS portfolio represented 28% of total assets at December 31,
1996, and 29% at December 31, 1995.
<PAGE> 14
The SAFS portfolio at December 31, 1996, includes securities issued by
the State of Ohio and the State of Michigan with the following values:
<TABLE>
<CAPTION>
FAIR AMORTIZED
VALUE COST
(DOLLARS IN THOUSANDS)
<S> <C> <C>
State of Ohio $8,494 $8,272
State of Michigan 4,091 3,982
</TABLE>
TABLES 7 and 8 set forth the carrying value of the SAFS portfolio at
the dates indicated, and provide an analysis of the maturities and average
yields on a fully taxable equivalent basis (assuming a 34% tax rate) as of
December 31, 1996. Classification by maturity is determined by the earlier of
maturity date or call date.
<TABLE>
<CAPTION>
TABLE 7 - SECURITIES AVAILABLE FOR SALE
(DOLLARS IN THOUSANDS)
CARRYING VALUE AT DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. government securities
and agency obligations $121,195 $107,759 $75,753 $49,034 $3,519
Corporate debt securities 17,494 13,685 - 3,883 1,997
Municipal obligations 13,661 13,619 - - -
Mortgage-backed securities 3,087 3,163 - - -
Other securities 3,772 2,401 2,229 1,401 546
-------- -------- ------- ------- ------
TOTAL $159,209 $140,627 $77,982 $54,318 $6,062
======== ======== ======= ======= ======
</TABLE>
TABLE 8 - MATURITY ANALYSIS AT DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AFTER 1 AFTER 5
YEAR BUT YEARS BUT
WITHIN WITHIN WITHIN AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
------ ------- -------- -------- -----
<S> <C> <C> <C> <C>
U.S. government securities
and agency obligations $36,749 $ 83,461 $ 985 - $121,195
Corporate debt securities 5,016 10,430 2,048 - 17,494
Municipal obligations 346 6,707 6,242 366 13,661
Mortgage-backed securities 109 2,978 - - 3,087
Other securities - 10 - 3,762 3,772
------- -------- ------ ------ --------
TOTAL $42,220 $103,586 $9,275 $4,128 $159,209
======= ======== ====== ====== ========
WEIGHTED AVERAGE YIELD:
U.S. government securities
and agency obligations 6.24% 6.65% 7.11% - 6.53%
Corporate debt securities 7.08% 6.56% 7.13% - 6.77%
Municipal obligations 7.51% 7.31% 7.11% 8.20% 7.25%
Mortgage-backed securities 9.17% 5.57% - - 5.70%
Other securities - 9.00% - 6.30% 6.31%
TOTAL 6.60%
</TABLE>
<PAGE> 15
The securities held to maturity (SHTM) portfolio represented 17% of
total assets at December 31, 1994, and 20% at December 31, 1993. As discussed
above, the entire SHTM portfolio was transferred to SAFS during 1995. During
1993, approximately $49 million of SHTM were transferred to SAFS in connection
with the implementation of FAS No. 115.
TABLE 9 sets forth the carrying value of the SHTM portfolio at the
dates indicated.
<TABLE>
<CAPTION>
TABLE 9 - SECURITIES HELD TO MATURITY
(DOLLARS IN THOUSANDS)
CARRYING VALUE AT DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
U.S. government securities
and agency obligations - - $42,441 $36,432 $58,937
Corporate debt securities - - 13,749 13,250 14,605
Municipal obligations - - 12,475 10,890 5,278
Mortgage-backed securities - - 3,225 3,348 4,331
Other securities - - 30 25 25
-------- -------- --------- --------- ---------
TOTAL - - $71,920 $63,945 $83,176
======== ======== ======= ======= =======
</TABLE>
FEDERAL FUNDS SOLD
- ------------------
Short-term Federal funds sold are used to manage interest rate
sensitivity and to meet liquidity needs. During 1996, 1995 and 1994, the average
balance of these funds represented less than 1% of average total assets for the
same periods. As the Bank has grown, the ability to manage daily liquidity needs
has become stable and the use of daily Federal funds sold has been maintained at
a very manageable level.
DEFERRED FEDERAL INCOME TAXES
- -----------------------------
Deferred Federal income taxes represent a net asset of $1,440,000 at
December 31, 1996. This amount is comprised primarily of deferred taxes relating
to the nondeductible portion of the credit allowance offset by the unrealized
gains on available for sale securities which total $1,772,000 and $273,000,
respectively. Certain limits exist for deduction of the provision related to
credit losses that exceeds actual experience. With insignificant loan
charge-offs, the Company's tax deduction to date, has been minimal. Sufficient
taxable income in prior years exists to realize the deferred tax assets that are
recorded.
<PAGE> 16
SOURCES OF FUNDS
----------------
DEPOSITS
- --------
The Company's major source of investable funds is core deposits from
retail and business customers. These core deposits consist of interest bearing
and noninterest bearing deposits, excluding certificates of deposit equal to or
greater than $100,000. These core deposits grew to $332 million in 1996 from
$297 million in 1995 and $277 million in 1994.
Certificates of deposit equal to or greater than $100,000 grew to $138
million in 1996 from $110 million in 1995 and $80 million in 1994. The continued
strong marketing effort to secure customers willing to consolidate deposits into
a single investment (ie. certificate of deposit) has allowed the Company to
support a strong loan growth. These funds are used to balance rate sensitivity
and as a supplement to core deposits.
Since the Company places less emphasis on mass marketing of retail
products, its customer base consists of higher net worth individuals and their
related companies, and retirees. The net growth, since the Company opened in
1989, has been without significant fluctuation and the deposit base has been
reliable. Management anticipates a continuation of these trends. Average
deposits increased 15% in 1996, 21% in 1995 and 32% in 1994.
TABLE 10 is a summary of the average amount of, and the average rate paid on,
each of the Bank's deposit categories.
TABLE 10 - AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest
bearing deposits $ 35,307 $ 31,282 $ 27,419
Money market accounts 99,839 3.81% 89,608 4.16% 62,541 3.42%
Savings 19,449 2.91% 20,729 3.25% 32,162 3.03%
Other time deposits 278,101 5.78% 236,607 5.87% 190,170 4.73%
-------- -------- --------
TOTAL $432,696 $378,226 $312,292
======== ======== ========
</TABLE>
The increase (decrease) in average deposits by category for 1996 was as
follows: Noninterest bearing deposits, 13%; money market accounts, 11%; savings,
(6%) and other time deposits, 18%. The decrease in average savings deposits is
attributable to a shift in funds from personal and corporate accounts into a new
limited transaction money market product offered during 1994.
Certificates of deposit of $100,000 or more grew 26% in 1996. As the
Company grows, the market penetration of the retail customer base expands. In
addition, customers are continually consolidating banking relationships, taking
advantage of the Company's competitively priced deposit products. The maturity
distribution of certificates of deposit of $100,000 or more at December 31,
1996, is reflective of the interest rate environment during 1996, which had more
favorable rates in short-term investments.
TABLE 11 - CERTIFICATES OF DEPOSIT OF $100,000 OR MORE AT DECEMBER 31
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maturing:
3 months or less $ 61,849 $ 54,946 $25,715
Over 3 to 6 months 28,243 17,077 16,864
Over 6 to 12 months 28,737 20,374 18,467
Over 12 months 19,495 17,806 18,995
--------- -------- -------
TOTAL $138,324 $110,203 $80,041
======== ======== =======
</TABLE>
<PAGE> 17
SHORT-TERM BORROWINGS
- ---------------------
Short-term borrowings were $42 million, $35 million and $29 million at
December 31, 1996, 1995 and 1994, respectively.
Short-term borrowings are primarily composed of advances from The
Federal Home Loan Bank (44.9%). The remaining 55.1% is composed of securities
sold under agreements to repurchase which are secured transactions, a majority
of which mature within one year or less and Federal funds borrowings. Additional
information regarding securities sold under agreements to repurchase and Federal
Home Loan Bank borrowings is summarized below:
<TABLE>
<CAPTION>
SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE FEDERAL HOME LOAN BANK
------------------------ ----------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Weighted average interest rate
at year-end 4.31% 5.34% 5.31% 5.56% 5.58% 5.86%
Amount outstanding at year-end $15,531 $24,203 $19,033 $19,000 $8,000 $10,000
Maximum amount outstanding at
any month end 26,012 26,003 23,458 19,000 9,000 10,000
Daily average amount outstanding
during the year 21,255 23,098 26,587 12,015 5,759 4,175
Weighted average interest rate
for the year 5.30% 5.69% 3.15% 5.51% 5.45% 5.12%
</TABLE>
CAPITAL RESOURCES AND DIVIDENDS
- -------------------------------
Shareholders' equity is a stable, noninterest bearing source of funds
which provides support for asset growth and is the primary component of capital.
Shareholders' equity at December 31, 1996, 1995 and 1994 was $41.6 million,
$36.1 million and $27.6 million, respectively. During 1996, the Bank paid a
$10,000,000 cash dividend to the parent company. The parent company then issued
$10,000,000 in subordinated debt to the Bank. Approval was obtained from the
Officer of the Comptroller of the Currency. Principal is due at maturity,
January 1, 2007, with interest payable at 6.75% on January 1 of each year.
In April 1993, shareholders voted to increase the authorized common
stock from 1.5 million shares to 3.0 million shares. The Company issued a 6%
stock dividend in June of 1996, 1995, 1994 and 1993.
The following shows consolidated operating and capital ratios of the
Company for each of the past three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.13% 1.10% 1.11%
Return on average equity 15.19% 15.30% 15.19%
Average equity to average assets 7.41% 7.16% 7.32%
Tier 1 capital (1) 10.14% 10.19% 10.82%
Tier 2 capital (2) 11.39% 11.44% 12.08%
Leverage (3) 7.60% 7.47% 7.33%
<FN>
(1) Shareholders' equity less the effect of securities available for sale market
value adjustment per FAS No. 115 and intangibles, if applicable, computed as
a ratio to risk-adjusted assets, as defined in the 1994 risk-based capital
guidelines.
(2) Tier 1 capital plus qualifying credit loss allowance, computed as a ratio to
risk-adjusted assets, as defined in the 1994 risk-based capital guidelines.
(3) Tier 1 capital, computed as a ratio to the latest quarter's average assets,
less goodwill, if applicable.
</TABLE>
The Bank's capital ratios are well in excess of the minimum regulatory
risk-based capital requirements of 4% for Tier 1 capital and leverage and 8% for
Tier 2 capital.
<PAGE> 18
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
LIQUIDITY
- ---------
Liquidity is measured by the Company's ability to raise funds through
deposits, borrowed funds, capital or cash flow from the repayment of loans.
These funds are used to meet deposit withdrawals, maintain reserve requirements,
fund loans and operate the Company. Liquidity is achieved through the growth of
core deposits and liquid assets, including securities available for sale,
matured securities and Federal funds sold. Asset and liability management is the
process of managing the balance sheet to achieve a mix of earning assets and
liabilities that maximizes profitability, while providing adequate liquidity.
The Company's major source of funds is a substantial base of core
funds, defined as core deposits plus shareholders' equity and other liabilities.
The Company supplements core funds by regularly issuing certificates of deposit
and repurchase agreements. The Company also has the ability to borrow money on a
daily basis through correspondent banks and the Federal Home Loan Bank to
satisfy short-term liquidity needs. At December 31, 1996, and 1995, the Company
had $8.2 million and $14.3 million, respectively, of unused lines of credit.
During January 1997, the Company's Board of Directors approved an increase in
the investment by the Bank in the Federal Home Loan Bank from $2.9 million to
$6.0 million. This will increase the Company's available line of credit with the
Federal Home Loan Bank to $36.0 million.
In addition to normal loan funding and deposit flow, the Company also
needs to maintain liquidity to meet the demands of certain unfunded loan
commitments and standby letters of credit. As of December 31, 1996, the Company
had a total of $122.4 million in unfunded loan commitments and $9.4 million in
unfunded standby letters of credit. Of the total unfunded loan commitments,
$103.1 million were commitments available as lines of credit to be drawn at any
time as customers' cash needs vary, and $19.3 million were for loan commitments
scheduled to close and become funded within the next six months. The Company
monitors fluctuations in balances and manages its overall liquidity, taking into
account these unfunded commitments.
On a parent company basis, the Company's only source of funds is
dividends paid by the subsidiary Bank. The ability of the Bank to pay dividends
is subject to limitations under various laws and regulations and to prudent and
sound banking principles. The amount of unrestricted retained earnings available
to be paid by the Bank to the Company was approximately $970,000 at December 31,
1996.
INTEREST RATE RISK
- ------------------
Balance sheet structure and interest rate changes play important roles
in the growth of net interest income. The Company's Asset/Liability Committee
(ALCO) manages the overall rate sensitivity and mix of the balance sheet to
anticipate and minimize the effects of interest rate fluctuations and maintain a
consistent net interest margin. The relative measure of assets and liabilities
that will mature or are scheduled to reprice within various time categories is
known as "GAP." Because the Company has more liabilities than assets repricing
within one year at December 31, 1996, it has a negative GAP and is considered
liability sensitive. In a rising rate environment, this liability surplus would
most likely detract from net interest income. In a declining rate environment,
the effect would most likely be favorable. Experience has shown that this
generalization does not fully capture the true dynamics of interest rate changes
since asset and liability rates do not adjust equally.
TABLE 12, Interest Rate Sensitivity Analysis, shows as of December 31,
1996, assets and liabilities which are maturing at various periods in time and
which will be subject to repricing. A formal asset/liability management analysis
is performed on a monthly basis by Austin Advisors, Inc., a firm specializing in
consulting and providing assistance to banks. This information is presented and
reviewed by the "ALCO" Committee.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The Report of Independent Auditors and Consolidated Financial
Statements included on pages 9 through 21 of the 1996 Annual Report to
Shareholders are incorporated herein by reference.
<PAGE> 19
TABLE 12 - INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------
1 TO 4 4 MONTHS 1 TO 5 OVER
MONTHS TO 1 YEAR YEARS 5 YEARS TOTAL
-------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets:
Loans, gross $137,547 $17,584 $202,378 $23,290 $380,799
Securities available for sale (1) 27,323 14,897 103,586 13,403 159,209
Other assets - - - 19,718 19,718
----------------------------------------------------------------------------------
Total Assets $164,870 $32,481 $305,964 $56,411 $559,726
----------------------------------------------------------------------------------
Liabilities:
Savings, time and interest
checking $194,009 $67,580 $30,313 $99 $292,001
CD's $100,000 & over 73,753 45,076 19,227 268 138,324
Borrowed funds 33,331 5,000 4,000 - 42,331
Other liabilities - - - 45,480 45,480
----------------------------------------------------------------------------------
Total Liabilities 301,093 117,656 53,540 45,847 518,136
Shareholders' Equity - - - 41,590 41,590
----------------------------------------------------------------------------------
Total Sources of Funds $301,093 $117,656 $53,540 $87,437 $559,726
----------------------------------------------------------------------------------
Maturity/rate sensitivity GAP ($136,223) ($85,175) $252,424 ($31,026)
Cumulative GAP (136,223) (221,398) 31,026 -
Percent of cumulative GAP to
total assets -24% -40% 6% -
<FN>
(1) This table classifies securities according to sensitivity to changes in
interest rates.
</TABLE>
<PAGE> 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ---------------------------------------------------
The following table lists the Non-Director, Executive Officers of the
Company and its subsidiary, Capital Bank, N.A., and certain other information
with respect to each individual, as of December 31, 1996. The information
required by this item with respect to Directors of the Company and its
subsidiary, Capital Bank, N.A., is incorporated herein by reference to the
information under the heading "Election of Directors and Information with
Respect to Directors and Officers" in the definitive Proxy Statement of the
Company.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND DIRECTORSHIP
- ---- --- -------------------------------------
<S> <C> <C>
Michael P. Killian 45 Chief Financial Officer of the Company, Senior Vice President - Operations
and Chief Financial Officer of the Bank
Stephen J. Kovatch 54 Assistant Secretary of the Company, Senior Vice President - Marketing of the Bank
Bruce K. Lee 36 Senior Vice President - Lending of the Bank
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information required by this item is incorporated herein by reference
to the information under the heading "Executive Compensation and Other
Information" in the definitive Proxy Statement of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information required by this item is incorporated herein by reference
to the information under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the definitive Proxy Statement of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information required by this item is incorporated herein by reference
to the information under the heading "Certain Relationships and Related
Transactions" in the definitive Proxy Statement of the Company.
<PAGE> 21
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
- -------- --------------------------------------------------------------
(a) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
--------------------------------------------------------
The following consolidated financial statements included in the 1996
Annual Report to Shareholders of Capital Holdings, Inc., are incorporated by
reference in ITEM 8:
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Schedules are omitted because they are inapplicable, not required, or
the information is included in the consolidated financial statements or notes
thereto.
(b) REPORTS ON FORM 8-K
-------------------
None
(c) EXHIBITS
--------
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S> <C> <C>
3.1 Articles of Incorporation of Capital Holdings, Inc. *
---
3.2 Code of Regulations of Capital Holdings, Inc. *
---
3.3 Articles of Incorporation of Capital Holdings, Inc., as amended +
May 18, 1993 ---
4.0 Certificate for Common Shares of Capital Holdings, Inc. *
---
10 Nonemployee Director Stock Option Plan &
of Capital Holdings, Inc. ---
10.2 Option Agreement of Stephen J. Kovatch, Senior Vice *
President - Marketing of Capital Bank, N.A.
10.3 Option Agreement and Covenant Not to Compete of *
Michael P. Killian, Senior Vice President - Operations ---
of Capital Bank, N.A. and Bruce K. Lee, Senior Vice
President - Lending of Capital Bank, N.A.
10.4 1988 Incentive Stock Option Plan of Capital Holdings, Inc. *
10.5 Lease between Capital Bank, N.A. and CBNA Building Company, *
a wholly-owned subsidiary of Capital Holdings, Inc.
10.6 Supplemental Executive Retirement Plan of Capital Holdings, Inc. $
13 The Company's 1996 Annual Report to Shareholders - Except ---
for the portions of the report expressly incorporated
by reference, the Report is furnished solely for the
information of the Commission and is not deemed
"filed" as part hereof
21 List of Subsidiaries *
(i) Capital Bank, N.A., a national banking ---
association chartered by the Office of the
Comptroller of the Currency of the United States
(ii) CBNA Building Company, an Ohio corporation
23.1 Consent of Independent Auditors
27 Financial Data Schedule
<FN>
* Documents incorporated by reference from the Company's S-1 Registration
Statement, File Number 33-46573, effective May 8, 1992.
+ Document incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
& Document incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995.
$ Document incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
</TABLE>
(d) FINANCIAL STATEMENT SCHEDULES
-----------------------------
None required.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 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 the dates indicated.
CAPITAL HOLDINGS, INC.
By /s/ John S. Szuch March 21, 1997
---------------------------------------------------------------
John S. Szuch Date
Chairman and Chief Executive Officer
Director
By /s/ Robert A. Sullivan March 21, 1997
---------------------------------------------------------------
Robert A. Sullivan Date
President and Chief Operating Officer
Director
By /s/ Michael P. Killian March 21, 1997
---------------------------------------------------------------
Michael P. Killian Date
Senior Vice President and Chief Financial Officer
<PAGE> 23
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
Capital Holdings, Inc. and Subsidiaries and in the capacities and on the dates
indicated.
By /s/ James M. Appold March 21, 1997
---------------------------------------------------------------
James M. Appold Date
Director
By /s/ David P. Bennett March 21, 1997
---------------------------------------------------------------
David P. Bennett Date
Director
By /s/ Yale M. Feniger March 21, 1997
---------------------------------------------------------------
Yale M. Feniger Date
Director
By /s/ George A. Isaac, III March 21, 1997
---------------------------------------------------------------
George A. Isaac, III Date
Director
By /s/ Michael C. Landin March 21, 1997
---------------------------------------------------------------
Michael C. Landin Date
Director
By /s/ Ronald R. Langenderfer March 21, 1997
---------------------------------------------------------------
Ronald R. Langenderfer Date
Director
<PAGE> 24
By /s/ Joel A. Levine March 21, 1997
--------------------------------------------------------------
Joel A. Levine Date
Director
By /s/ W. G. Lyden, III March 21, 1997
--------------------------------------------------------------
W. G. Lyden, III Date
Director
By /s/ Thomas W. Noe March 21, 1997
--------------------------------------------------------------
Thomas W. Noe Date
Director
By /s/ Noel Romanoff March 21, 1997
--------------------------------------------------------------
Noel Romanoff Date
Director
By /s/ James D. Sayre March 21, 1997
--------------------------------------------------------------
James D. Sayre Date
Director
By /s/ James M. Tuschman March 21, 1997
--------------------------------------------------------------
James M. Tuschman Date
Director
<PAGE> 1
Exhibit 13
[ERNST & YOUNG LLP LOGO]
<PAGE> 2
Consolidated Financial Statements
Capital Holdings, Inc. and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE> 3
Capital Holdings, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors..........................................................................1
Audited Consolidated Financial Statements
Consolidated Balance Sheets.............................................................................2
Consolidated Statements of Income.......................................................................3
Consolidated Statements of Shareholders' Equity.........................................................4
Consolidated Statements of Cash Flows...................................................................5
Notes to Consolidated Financial Statements..............................................................6
</TABLE>
<PAGE> 4
[ERNST & YOUNG LLP LOGO] [ERNST & YOUNG LETTERHEAD]
Report of Independent Auditors
Board of Directors and Shareholders
Capital Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Capital
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Capital Holdings,
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
January 17, 1997
<PAGE> 5
Capital Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (noninterest bearing) $ 13,958,201 $ 13,047,891
Investment securities available-for-sale, at fair
value (amortized cost $158,405,064 in 1996 and
$138,759,186 in 1995) 159,209,293 140,626,604
Loans 380,160,315 324,788,467
Less allowance for credit losses 5,942,377 4,960,000
-----------------------------
Net loans 374,217,938 319,828,467
Bank premises and equipment 6,010,385 4,483,154
Interest receivable and other assets 6,329,983 5,184,311
-----------------------------
Total assets $559,725,800 $483,170,427
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $430,324,792 $368,109,187
Noninterest bearing 40,418,300 39,512,336
-----------------------------
Total deposits 470,743,092 407,621,523
Short-term borrowings 42,330,560 35,202,708
Interest payable and other liabilities 5,062,044 4,210,134
-----------------------------
Total liabilities 518,135,696 447,034,365
Shareholders' equity:
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized, 1,897,508 shares
issued and outstanding (1,777,727 in 1995) 948,754 888,864
Capital in excess of stated value 30,893,093 27,136,543
Retained earnings 9,217,448 6,878,138
Unrealized net holding gains on securities
available-for-sale, net of tax 530,809 1,232,517
-----------------------------
Total shareholders' equity 41,590,104 36,136,062
-----------------------------
Total liabilities and shareholders' equity $559,725,800 $483,170,427
=============================
</TABLE>
See accompanying notes.
2
<PAGE> 6
Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 29,899,157 $25,465,465 $17,750,964
Securities:
Taxable 8,914,952 8,385,922 7,877,693
Exempt from federal income tax 682,893 671,365 595,752
Federal funds sold 141,916 229,409 105,553
---------------------------------------------
Total interest income 39,638,918 34,752,161 26,329,962
Interest expense:
Deposits 20,450,873 18,298,948 12,105,314
Short-term borrowings 1,854,351 1,665,514 1,082,411
---------------------------------------------
Total interest expense 22,305,224 19,964,462 13,187,725
---------------------------------------------
Net interest income 17,333,694 14,787,699 13,142,237
Provision for credit losses 980,000 850,000 993,238
---------------------------------------------
Net interest income after provision for
credit losses 16,353,694 13,937,699 12,148,999
Other income:
Securities gains (losses) - net (55,434) 81,185 76,540
Other 929,727 672,092 558,983
---------------------------------------------
Total other income 874,293 753,277 635,523
Other expenses:
Salaries and employee benefits 4,632,241 3,740,793 3,223,199
FDIC and other insurance 2,000 415,569 625,595
Other 4,186,868 3,433,653 3,010,893
---------------------------------------------
Total other expenses 8,821,109 7,590,015 6,859,687
---------------------------------------------
Income before provision for federal
income tax
8,406,878 7,100,961 5,924,835
Provision for federal income tax (Note 8) 2,681,000 2,256,000 1,844,000
---------------------------------------------
Net income $ 5,725,878 $ 4,844,961 $ 4,080,835
=============================================
Net income per share $ 2.93 $ 2.51 $ 2.15
=============================================
</TABLE>
See accompanying notes.
3
<PAGE> 7
Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Capital in Unrealized Total
Common Excess of Retained Holding Shareholders'
Stock Stated Value Earnings Gains (Losses) Equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $777,177 $21,177,840 $ 3,224,217 $ 1,768,016 $26,947,250
Issuance of 13,254 shares of common stock
at $26.50 per share 6,627 344,604 351,231
Common stock dividend, 93,126 shares 46,563 2,397,994 (2,452,357) (7,800)
Exercise of 2,700 common stock options
at $12.84 per share 1,350 33,318 34,668
Net income 4,080,835 4,080,835
Net unrealized loss on securities
available-for-sale, net of
deferred income taxes of $1,979,000 (3,841,591) (3,841,591)
------------------------------------------------------------------------
Balance at December 31, 1994 831,717 23,953,756 4,852,695 (2,073,575) 27,564,593
Issuance of 14,839 shares of common stock
at $29.00 per share 7,420 422,911 430,331
Common stock dividend, 99,455 shares 49,727 2,759,876 (2,819,518) (9,915)
Net income 4,844,961 4,844,961
Net unrealized gain on securities
available-for-sale, net of
deferred income taxes of $1,703,000 3,306,092 3,306,092
------------------------------------------------------------------------
Balance at December 31, 1995 888,864 27,136,543 6,878,138 1,232,517 36,136,062
Issuance of 13,010 shares of common stock
at $33.50 per share 6,505 429,330 435,835
Common stock dividend, 106,324 shares 53,162 3,322,625 (3,386,568) (10,781)
Exercise of 447 common stock options
at $10.78 per share 223 4,595 4,818
Net income 5,725,878 5,725,878
Net unrealized loss on securities
available-for-sale, net of
deferred income taxes of $361,000 (701,708) (701,708)
-----------------------------------------===================================
Balance at December 31, 1996 $948,754 $30,893,093 $ 9,217,448 $ 530,809 $41,590,104
============================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 8
Capital Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,725,878 $ 4,844,961 $ 4,080,835
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses 980,000 850,000 993,238
Depreciation and amortization 301,854 286,597 308,200
Amortization and accretion of security premiums and
discounts (54,105) (88,941) (61,693)
Loss (gain) on sale of investment securities 55,434 (81,185) (76,541)
Deferred income tax (credit) (333,200) (247,000) (242,000)
Changes in assets and liabilities:
Interest receivable and other assets (450,990) (524,979) (1,067,077)
Interest payable and other liabilities 851,910 508,328 1,915,016
------------------------------------------------
Total adjustments 1,350,903 702,820 1,769,143
------------------------------------------------
Net cash provided by operating activities 7,076,781 5,547,781 5,849,978
INVESTING ACTIVITIES
Purchases of held-to-maturity securities -- (1,194,294) (8,084,136)
Purchases of available-for-sale securities (63,954,536) (25,102,365) (42,676,186)
Net increase in loans (55,369,471) (73,604,609) (56,313,644)
Purchase of bank premises and equipment (1,829,085) (875,494) (259,744)
Proceeds from sales of available-for-sale securities 35,432,969 35,044,038 13,311,100
Proceeds from maturities of available-for-sale securities 8,874,359 -- --
Proceeds from maturities of held-to-maturity securities -- 5,707,506 128,283
------------------------------------------------
Net cash used in investing activities (76,845,764) (60,025,218) (93,894,327)
FINANCING ACTIVITIES
Net increase in deposits 63,121,569 50,088,811 94,801,212
Net increase (decrease) in short-term borrowings 7,127,852 6,169,368 (2,017,852)
Issuance of common stock 440,653 430,331 385,899
Payment of dividends on fractional shares (10,781) (9,915) (7,800)
------------------------------------------------
Net cash provided by financing activities 70,679,293 56,678,595 93,161,459
------------------------------------------------
Increase in cash and cash equivalents 910,310 2,201,158 5,117,110
Cash and cash equivalents at beginning of year 13,047,891 10,846,733 5,729,623
------------------------------------------------
Cash and cash equivalents at end of year $ 13,958,201 $ 13,047,891 $ 10,846,733
================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 22,119,961 $ 19,324,820 $ 12,406,168
================================================
Income taxes paid $ 2,975,000 $ 2,498,998 $ 2,075,000
================================================
NONCASH OPERATING ACTIVITIES:
Change in deferred income taxes on net unrealized
gains or losses on available-for-sale securities $ (361,482) $ 1,703,139 $ (1,979,000)
================================================
NONCASH INVESTING ACTIVITIES:
Change in net unrealized (loss) gain on
available-for-sale securities $ (1,063,190) $ 5,009,232 $ (5,820,591)
================================================
Transfer of held to maturity securities to
available-for-sale securities (Note 3) $ - $ 67,345,338 $ -
================================================
</TABLE>
See accompanying notes.
5
<PAGE> 9
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The 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 (CBNA). The Bank operates in the western part of
Lucas County and a portion of the extreme northwest part of Wood County in
northwestern Ohio as a national banking association and focuses on corporate,
executive and professional customers, with the primary emphasis on deposits from
and commercial loans to businesses and professionals. All significant
intercompany balances and transactions have been eliminated.
The Bank is subject to the regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company has
defined cash equivalents as due from banks and federal funds sold with a
maturity of three months or less at date of purchase. The carrying amounts
reported in the balance sheet for cash and cash equivalents approximate those
assets' fair values.
SECURITIES AVAILABLE-FOR-SALE AND HELD-TO-MATURITY
Management determines the appropriate classification of investment securities at
the time of purchase. If the Company has the positive intent and ability to hold
debt securities to maturity and designates them as held-to-maturity, such
securities are stated at amortized cost. Available-for-sale securities are
stated at fair value, with the unrealized gains and losses, net of income tax,
reported as a separate component of shareholders' equity. The Company has no
trading securities.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in interest income from
investments. The cost of securities sold is based on the specific identification
method.
6
<PAGE> 10
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Currently, the Company invests only in on-balance-sheet derivative securities as
part of the overall asset and liability management process. All such securities
owned at December 31, 1996 and 1995 are issued by U. S. Government sponsored
agencies and represent approximately 1.3% and 1.5%, respectively, of total
assets.
LOANS
The Bank grants commercial, real estate and consumer loans to customers
primarily in northwest Ohio. Interest on loans is accrued by using the simple
interest method on the principal amounts outstanding. Loan origination and
commitment fees are being deferred and amortized over the estimated life of the
related loans as a yield adjustment.
ALLOWANCE FOR CREDIT LOSSES
Inherent to the preparation of financial statements in conformity with generally
accepted accounting principles is the use of accounting estimates. These
estimates are used, when uncertainties exist regarding future events, to
determine the balances in asset and liability accounts. Most significantly, the
Bank uses estimates in determining the value of the allowance for credit losses.
The allowance for credit losses is established through a provision for credit
losses charged to operating expense. Loans are charged off against the allowance
for credit losses when management believes that the collectibility of the
principal is unlikely. The allowance is the estimated amount that management
believes will be adequate to absorb potential losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans. The
evaluations take into consideration such factors as changes in the composition
and size of the loan portfolio, overall portfolio quality, review of specific
problem loans, current economic conditions and industry guidelines. While
management believes it uses the best information available to make evaluations,
future adjustments to the allowance for credit losses may be necessary in
circumstances that differ substantially from assumptions in making the
evaluations.
In May 1993 the Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS No. 114), which was
amended by Statement No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures" (FAS No. 118). The Company adopted the
provisions of these new standards at the beginning of fiscal 1995 which had no
effect on the allowance for credit losses.
7
<PAGE> 11
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
DEPRECIATION
Depreciation of bank premises and equipment is determined using straight-line
rates over estimated useful lives.
DEPOSITS
Interest is paid on customers' deposits at varying rates and periods depending
on the extent, if any, of minimum balance and holding period requirements.
RETIREMENT PLANS
The Bank maintains a retirement savings plan for substantially all employees.
Within certain limitations, contributions can be made by participants on a
pre-tax basis, and the Bank may contribute an amount equal to a certain
percentage, as determined annually by the Board of Directors, of the
participants' semi-monthly contributions. The plan provides for discretionary
profit sharing contributions as determined by the Bank's management. Also,
effective January 1, 1995, the Company established a Supplemental Executive
Retirement Plan for certain key management employees. Total expense under these
plans in 1996, 1995 and 1994 was approximately $257,000, $220,000 and $234,000,
respectively.
NET INCOME PER SHARE
Net income per share is based upon the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding, which were
1,957,091 in 1996, 1,926,883 in 1995 and 1,900,676 in 1994, after giving
retroactive effect to a 6% stock dividend issued during 1996, 1995 and 1994.
Dilutive common stock equivalents consist of shares issuable under a stock
option plan (see Note 9).
8
<PAGE> 12
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. CASH AND DUE FROM BANKS
At December 31, 1996 and 1995, approximately $2,354,000 and $1,547,000,
respectively, was restricted due to requirements of the Federal Reserve Board to
maintain certain average reserve balances.
3. INVESTMENT SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS No. 115). In November of 1995, the Financial
Accounting Standards Board issued "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" (the Guide).
In implementing the Guide, a one time opportunity was available for a company to
reassess its securities classifications and transfer any or all held-to-maturity
securities to available-for-sale. In accordance with the provisions of the
Guide, the Company elected to transfer all of its held-to-maturity securities at
December 28, 1995 to available-for-sale, at fair value of approximately
$67,300,000.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities:
U. S. Government and agency
obligations $120,830,661 $1,092,858 $728,601 $121,194,918
Corporate 17,371,584 155,030 32,078 17,494,536
Municipal 13,313,211 363,487 15,375 13,661,323
Mortgage-backed 3,118,009 4,953 36,046 3,086,916
-------------------------------------------------------------
154,633,465 1,616,328 812,100 155,437,693
Other securities 3,771,600 -- -- 3,771,600
-------------------------------------------------------------
Total securities available-for-sale $158,405,065 $1,616,328 $812,100 $159,209,293
=============================================================
</TABLE>
9
<PAGE> 13
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities:
U. S. Government and agency
obligations $106,450,116 $1,611,690 $302,773 $107,759,033
Corporate 13,486,490 207,572 9,227 13,684,835
Municipal 13,248,785 391,562 21,523 13,618,824
Mortgage-backed 3,172,995 7,068 16,951 3,163,112
----------------------------------------------------------------
136,358,386 2,217,892 350,474 138,225,804
Other securities 2,400,800 - - 2,400,800
----------------------------------------------------------------
Total securities available-for-sale $138,759,186 $2,217,892 $350,474 $140,626,604
================================================================
</TABLE>
Mortgage-backed securities consist primarily of U. S. Government agency
obligations. The mortgage-backed securities have various stated maturities
through December 2005. The estimated weighted average maturity of this segment
of the portfolio is 2.0 years.
The carrying value of securities available-for-sale that are pledged to secure
securities sold under agreements to repurchase and other deposits was
$65,304,000 and $58,719,000 at December 31, 1996 and 1995, respectively.
Sales of investment securities resulted in realized gains and losses for the
year ended December 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Securities gains $ 37,987 $ 128,837 $ 239,442
Securities losses (93,421) (47,652) (162,902)
======================================
Net gain (loss) $(55,434) $ 81,185 $ 76,540
======================================
</TABLE>
The amortized cost and fair value of investment securities at December 31, 1996
by contractual maturity are shown below. The contractual maturity is utilized
below except for mortgage-backed securities which use expected maturities based
on prepayment trends at the date of acquisition. Expected maturities differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
10
<PAGE> 14
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------------------------------
<S> <C> <C>
Debt securities, excluding mortgage-
backed securities:
Due in one year or less $ 10,338,378 $ 10,371,084
Due after one year through five years 86,445,499 86,928,265
Due after five years through ten years 53,456,423 53,706,640
Due after ten years 1,275,156 1,344,788
--------------------------------
151,515,456 152,350,777
Mortgage-backed securities:
Due in one year or less 103,853 108,806
Due after one year through five years 3,014,156 2,978,110
--------------------------------
3,118,009 3,086,916
--------------------------------
Total debt securities 154,633,465 155,437,693
Other securities 3,771,600 3,771,600
--------------------------------
Total securities available-for-sale $158,405,065 $159,209,293
================================
</TABLE>
4. LOANS
The carrying amount of loans, classified by type, at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C>
Commercial $ 79,492,459 $ 74,346,925
Real estate:
Residential - first mortgage 86,749,725 70,968,938
Commercial - owner occupied 76,673,023 70,121,568
Commercial - investment 105,275,162 78,530,955
Consumer 26,995,179 25,653,557
Other 5,613,398 5,766,735
-----------------------------
380,798,946 325,388,678
Less deferred loan fees 638,631 600,211
-----------------------------
380,160,315 324,788,467
Less allowance for credit losses 5,942,377 4,960,000
-----------------------------
$374,217,938 $319,828,467
=============================
</TABLE>
11
<PAGE> 15
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LOANS (CONTINUED)
Transactions affecting the allowance for credit losses during 1996, 1995 and
1994 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $4,960,000 $4,110,000 $3,116,762
Provision for credit losses 980,000 850,000 993,238
Recoveries 2,377 -- --
----------------------------------------
Balance at end of year $5,942,377 $4,960,000 $4,110,000
========================================
</TABLE>
The Bank has granted loans to certain directors of the Company and to their
affiliates. Such loans are made in the ordinary course of business at the Bank's
normal credit terms including interest rates and collateralization, and do not
represent more than a normal risk of collection. Loans to directors, executive
officers and related individuals and entities totaled approximately $15,372,000
and $15,200,000 at December 31, 1996 and 1995, respectively. During 1996,
$5,020,000 of new loans were made and collections and repayments totaled
$4,848,000.
5. BANK PREMISES AND EQUIPMENT
Major classes of bank premises and equipment at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Cost:
Land and improvements $1,801,696 $1,788,121
Buildings and improvements 2,393,053 2,393,053
Construction in progress 1,634,958 --
Equipment 1,308,285 1,174,535
Furniture and fixtures 491,028 456,508
-------------------------
7,629,020 5,812,217
Less accumulated depreciation 1,618,635 1,329,063
-------------------------
$6,010,385 $4,483,154
=========================
</TABLE>
12
<PAGE> 16
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DEPOSITS
The carrying amounts of deposits, classified by type, at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
Noninterest bearing demand $ 40,418,300 $ 39,512,336
Interest checking 122,510,259 95,230,531
Savings 18,091,443 19,112,226
Certificates of deposit of $100,000 or more 138,324,266 110,203,285
Other time deposits 151,398,824 143,563,145
----------------------------------
$470,743,092 $407,621,523
==================================
</TABLE>
The maturity distribution of certificates of deposit issued in amounts of
$100,000 and over and outstanding at December 31, 1996 is:
<TABLE>
<S> <C>
Three months or less $ 61,849,452
Over three and through six months 28,243,510
Over six and through twelve months 28,736,593
Over twelve months 19,494,711
-------------
$ 138,324,266
=============
</TABLE>
7. SHORT-TERM BORROWINGS
Short-term borrowings, which are comprised of various types of funds at December
31 are summarized below:
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Securities sold under agreements to
repurchase $15,530,560 $24,202,708
Federal funds borrowed 7,800,000 3,000,000
Advances from FHLB 19,000,000 8,000,000
----------------------------
Total short-term borrowings $42,330,560 $35,202,708
=============================
</TABLE>
At December 31, 1996 and 1995, the Company had $8,150,000 and $14,300,000,
respectively, of unused lines of credit to obtain short-term financing.
13
<PAGE> 17
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. SHORT-TERM BORROWINGS (CONTINUED)
The maximum amount of securities sold under agreements to repurchase during 1996
was $26,012,000 and the average for the year was $21,255,000 The underlying
securities were under the Company's control.
Advances from the Federal Home Loan Bank have mortgage loans pledged as
collateral of $28,500,000 and $12,000,000 at December 31, 1996 and 1995,
respectively.
Included in the securities sold under agreements to repurchase were $1,000,000
in 1996 pledged to the City of Sylvania and $5,000,000 and $3,500,000 in 1995
pledged to Lucas County, Ohio and the City of Sylvania, respectively. The
weighted average maturity of the repurchase agreements is 0.1 month in 1996 and
11.7 months and 3.4 months in 1995 for Lucas County and the City of Sylvania,
respectively.
8. FEDERAL INCOME TAX
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Deferred tax liabilities:
Unrealized net holding gains on securities available for
sale $ 273,000 $ 635,000
Tax over book depreciation 101,000 97,000
Other 90,000 76,000
-------------------------
Total deferred tax liabilities 464,000 808,000
Deferred tax assets:
Allowance for credit losses 1,772,000 1,438,000
Deferred loan fees 69,000 88,000
Other 63,000 27,000
-------------------------
Total deferred tax assets 1,904,000 1,553,000
-------------------------
Net deferred tax assets included in the caption
"interest receivable and other assets" $1,440,000 $ 745,000
=========================
</TABLE>
14
<PAGE> 18
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. FEDERAL INCOME TAX (CONTINUED)
The provision (credit) for federal income tax for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Current $ 3,014,200 $ 2,503,000 $ 2,086,000
Deferred (333,200) (247,000) (242,000)
---------------------------------------------
Total $ 2,681,000 $ 2,256,000 $ 1,844,000
==============================================
</TABLE>
The effective tax rate differs from the statutory tax rate for the following
reasons and by the following percentages:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Interest on investments exempt from federal
income tax (2.8) (3.2) (3.4)
Other .7 1.0 .5
--------------------------
Effective tax rate 31.9% 31.8% 31.1%
==========================
</TABLE>
Income tax expense (benefit) related to gains and losses realized on the sale of
securities amounted to approximately ($19,000), $28,000 and $26,000 for 1996,
1995 and 1994, respectively.
9. CAPITAL STOCK
During 1996, 1995 and 1994, a 6% common stock dividend was declared which
resulted in the issuance of common shares totaling 106,324, 99,455 and 93,126,
respectively. An amount equal to the estimated fair value thereof was
transferred from retained earnings to common stock and to capital in excess of
stated value.
The Company established a Directors' Stock Option Plan during 1995 to replace
cash compensation for attendance at monthly board meetings and to provide an
annual retainer for nonemployee directors. Accordingly, during the term of the
Plan, the Company will grant directors options to purchase up to 159,000 common
shares. During 1996 and 1995, 9,805, and 3,180 options, respectively, were
granted at an option price equal to market
15
<PAGE> 19
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. CAPITAL STOCK (CONTINUED)
value of the underlying shares on the grant date. Each option granted under the
Plan is exercisable after five years from the date of the grant and all options
issued terminate at the earlier of one year following either the discontinuance
of service as a director or a change in control of the Company. Options issued
under the Plan are automatically adjusted for common stock dividends. The Plan
expires July 1, 2005.
The Company also has stock option plans under which 285,248 shares of common
stock may be issued to key employees at prices not less than market value at the
date of grant. The option period is ten years from the date of grant, and no
options are exercisable until the fifth anniversary of the grant. During 1996,
12,814 options were granted to key employees under these plans. Options issued
under these plans are automatically adjusted for common stock dividends. The
plans expire on November 22, 1998 and February 13, 2006.
The following table summarizes stock options activity for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Options
-------------------------
Available Option Price Per
for Grant Outstanding Share Range
---------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1994 18,679 107,053 $10.78 to $19.52
Granted (5,281) 5,281 $23.58
Exercised (2,700) $12.84
---------------------------------------------------
Balance at December 31, 1994 13,398 109,634 $10.78 to $23.58
Authorized 159,000
Granted (3,180) 3,180 $27.36
---------------------------------------------------
Balance at December 31, 1995 169,218 112,814 $10.78 to $27.36
Authorized 159,000
Granted (22,619) 22,619 $29.95
Exercised (447) $10.78
Forfeited 2,431 (2,431) $10.78 TO $29.95
---------------------------------------------------
Balance at December 31, 1996 308,030 132,555 $10.78 TO $29.95
===================================================
Exercisable - December 31, 1996 43,066
=======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock Based Compensation. The Statement requires the
recording of stock options at fair value or continuing with the Company's
practice of not recognizing compensation expense for fixed period awards issued
at current market value. If the Company elects to continue the existing
accounting, the disclosure of supplemental pro forma financial information
reflecting the fair value recognition of stock option based
16
<PAGE> 20
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. CAPITAL STOCK (CONTINUED)
compensation is required. Management has assessed the impact of this requirement
and determined that the pro forma impact is not material to the operations of
the Company for 1996 or 1995.
10. OTHER EXPENSES
The components of other expenses are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Postage, telephone and delivery $ 643,439 $ 597,374 $ 320,078
Taxes, other than income 535,380 406,251 367,309
Professional services 489,546 425,968 400,716
Equipment 328,297 301,856 313,881
Occupancy 254,799 239,403 246,041
Other 1,935,407 1,462,801 1,362,868
---------------------------------------------
Total other expenses $4,186,868 $3,433,653 $3,010,893
=============================================
</TABLE>
11. COMMITMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Loan commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition in the contract.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized, if any, in the balance sheet. The Bank's maximum
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Collateral, such as
accounts receivable, securities, inventory, property and equipment, is obtained
based on management's credit assessment of the borrower.
17
<PAGE> 21
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS (CONTINUED)
Fair value of the Bank's off-balance-sheet instruments (commitments to extend
credit and standby letters of credit) is based on rates currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. At December 31, 1996 and
1995, the rates on existing off-balance-sheet instruments were substantially
equivalent to current market rates, considering the underlying credit standing
of the counterparties.
The Bank's maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at December 31 was as follows:
<TABLE>
<CAPTION>
1996
--------------------------------
Expiration Loan Standby Letters
Date Commitments of Credit
- ---------------------------------------------------------------------------
<C> <C> <C>
1997 $104,875,000 $2,287,000
1998 1,782,000 1,267,000
1999 and beyond 15,746,000 5,853,000
--------------------------------
$122,403,000 $9,407,000
================================
1995
--------------------------------
Expiration Loan Standby Letters
Date Commitments of Credit
- ---------------------------------------------------------------------------
<C> <C> <C>
1996 $76,820,000 $1,273,000
1997 1,042,000 308,000
1998 and beyond 5,672,000 7,076,000
--------------------------------
$83,534,000 $8,657,000
================================
</TABLE>
Management does not anticipate any significant losses as a result of these
commitments.
18
<PAGE> 22
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. RETAINED EARNINGS AND REGULATORY CAPITAL
Bank regulatory agencies limit the transfer of assets in the form of dividends,
loans or advances from banks to the parent company. Under such limitations, the
amount available for payment of dividends to the Company without obtaining prior
approval of the Comptroller of the Currency was approximately $973,000 at
January 1, 1997. The Bank's 1997 earnings will also become available for
distribution. Restricted net assets of the Bank amounted to approximately
$29,219,000 or 70% of the Company's consolidated net assets at December 31,
1996.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Company and the Bank meet all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
19
<PAGE> 23
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. RETAINED EARNINGS AND REGULATORY CAPITAL (CONTINUED)
The following schedule presents the Company's regulatory capital ratios as of
December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Total Tier I Tier I
Risk-Based Risk-Based Leverage
Capital Capital Capital
---------------- ----------------- -----------------
<S> <C> <C> <C>
Minimum capital adequacy percentage 8.0% 4.0% 4.0%
Percentage to be well capitalized 10.0% 6.0% 5.0%
Actual percentage 11.4% 10.1% 7.6%
Required capital $32,471,000 $16,236,000 $21,622,000
Capital to be well capitalized $40,589,000 $24,353,000 $27,271,000
Actual capital $46,133,000 $41,059,000 $41,059,000
</TABLE>
13. FAIR VALUE STATEMENT OF CONDITION
The Financial Accounting Standards Board Statement No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement No. 107) requires disclosure of
fair value information about financial instruments, whether or not recognized in
the statement of financial condition, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
20
<PAGE> 24
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. FAIR VALUE STATEMENT OF CONDITION (CONTINUED)
The following is a comparative condensed consolidated statement of condition
based on carrying and estimated fair values as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 Carrying Estimated
Value Fair Values
---------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,958,201 $ 13,958,201
Investment securities 159,209,293 159,209,293
Loans, net 374,217,938 375,553,895
---------------------------------
547,385,432 $548,721,389
============
Other assets 12,340,368
------------
Total assets $559,725,800
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $470,743,092 $471,157,243
Short-term borrowings 42,330,560 42,320,671
------------
513,073,652 $513,477,914
============
Other liabilities 5,062,044
-----------
518,135,696
Shareholders' equity 41,590,104
------------
Total liabilities and shareholders' equity $559,725,800
============
</TABLE>
21
<PAGE> 25
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. FAIR VALUE STATEMENT OF CONDITION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 Carrying Estimated
Value Fair Values
----------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,047,891 $ 13,047,891
Investment securities 140,626,604 140,626,604
Loans, net 319,828,467 317,776,564
----------------------------------
473,502,962 $471,451,059
============
Other assets 9,667,465
------------
Total assets $483,170,427
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $407,621,523 $408,055,342
Short-term borrowings 35,202,708 35,214,429
------------
442,824,231 $443,269,771
============
Other liabilities 4,210,134
------------
447,034,365
Shareholders' equity 36,136,062
------------
Total liabilities and shareholders' equity $483,170,427
============
</TABLE>
14. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Assets:
Cash $ 570,350 $ 484,567
Investment in and advances to subsidiaries 40,717,004 35,605,795
Other assets 302,750 45,700
---------------------------------
Total assets $41,590,104 $36,136,062
=================================
Shareholders' equity $41,590,104 $36,136,062
=================================
</TABLE>
22
<PAGE> 26
Capital Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME
Dividend from subsidiary $ 10,000,000 $ -- $ --
Interest and fee income 450 900 900
Expenses 87,489 68,939 66,114
----------------------------------------------
Income (loss) before equity in
undistributed net income of subsidiaries 9,912,961 (68,039) (65,214)
(Decrease) increase in undistributed net
income of subsidiaries (4,187,083) 4,913,000 4,146,049
----------------------------------------------
Net income $ 5,725,878 $ 4,844,961 $ 4,080,835
==============================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Operating activities:
Net income $ 5,725,878 $ 4,844,961 $ 4,080,835
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed net income of
subsidiaries 4,187,083 (4,913,000) (4,146,049)
Decrease (increase) in other assets 450 13,250 (13,250)
----------------------------------------------
Net cash provided by (used in) operating activities
9,913,411 (54,789) (78,464)
Investing activities:
Increase in note receivable from subsidiary
(10,000,000) -- --
Investment in subsidiaries -- (425,000) (500,000)
Purchase of investment securities (257,500) (5,000) (5,000)
----------------------------------------------
Net cash used in investing activities (10,257,500) (430,000) (505,000)
Financing activities:
Issuance of common stock 440,653 430,331 385,899
Payment of dividends (10,781) (9,915) (7,800)
----------------------------------------------
Net cash provided by financing activities 429,872 420,416 378,099
----------------------------------------------
Increase (decrease) in cash 85,783 (64,373) (205,365)
Cash at beginning of year 484,567 548,940 754,305
----------------------------------------------
Cash at end of year $ 570,350 $ 484,567 $ 548,940
==============================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-17151) pertaining to the Employee Stock Purchase Plan of Capital
Holdings, Inc., of our report dated January 17, 1997, with respect to the
consolidated financial statements of Capital Holdings, Inc., incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG, LLP
Toledo, Ohio
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,958,201
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,209,293
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 380,160,315
<ALLOWANCE> 5,942,377
<TOTAL-ASSETS> 559,725,800
<DEPOSITS> 470,743,092
<SHORT-TERM> 42,330,560
<LIABILITIES-OTHER> 5,062,044
<LONG-TERM> 0
<COMMON> 948,754
0
0
<OTHER-SE> 40,641,350
<TOTAL-LIABILITIES-AND-EQUITY> 559,725,800
<INTEREST-LOAN> 29,899,157
<INTEREST-INVEST> 9,739,761
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 39,638,918
<INTEREST-DEPOSIT> 20,450,873
<INTEREST-EXPENSE> 22,305,224
<INTEREST-INCOME-NET> 17,333,694
<LOAN-LOSSES> 980,000
<SECURITIES-GAINS> (55,434)
<EXPENSE-OTHER> 8,821,109
<INCOME-PRETAX> 8,406,878
<INCOME-PRE-EXTRAORDINARY> 8,406,878
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,725,878
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
<YIELD-ACTUAL> 3.59
<LOANS-NON> 217,000
<LOANS-PAST> 237,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,960,000
<CHARGE-OFFS> 0
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 5,942,000
<ALLOWANCE-DOMESTIC> 3,058,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,884,000
</TABLE>
