<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 33-46573
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CAPITAL HOLDINGS, INC.
----------------------
(Exact name of registrant as specified in its Charter)
OHIO 34-1588902
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5520 MONROE STREET, SYLVANIA, OH 43560
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(Address of principal executive offices and zip code)
(419) 885-7379
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) YES X (2) NO
----- -----
As of September 30, 1997, there were 1,900,308 shares of common stock
outstanding.
<PAGE> 2
CAPITAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Consolidated balance sheets
September 30, 1997 and December 31, 1996 3
Consolidated statements of income
Three months ended September 30, 1997 and 1996;
Nine months ended September 30, 1997 and 1996 4
Consolidated statements of shareholders' equity
Nine months ended September 30, 1997 and 1996 5
Consolidated statements of cash flows
Nine months ended September 30, 1997 and 1996 6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10
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SIGNATURES 11
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</TABLE>
2
<PAGE> 3
CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,288,416 $ 13,958,201
Investment Securities Available for sale, at fair value 162,659,296 159,209,293
Loans 427,958,382 380,160,315
Less: Allowance for credit losses 6,662,377 5,942,377
------------ ------------
Net loans 421,296,005 374,217,938
Bank premises and equipment 9,411,594 6,010,385
Interest receivable and other assets 7,626,347 6,329,983
------------ ------------
Total Assets $615,281,658 $559,725,800
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $488,310,518 $430,324,792
Noninterest bearing 43,589,594 40,418,300
------------ ------------
Total deposits 531,900,112 470,743,092
Short-term borrowings 30,158,361 42,330,560
Interest payable and other liabilities 6,754,193 5,062,044
------------ ------------
Total Liabilities 568,812,666 518,135,696
SHAREHOLDERS' EQUITY
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized and 1,900,308 shares
issued and outstanding (1,897,508 in 1996) 950,154 948,754
Capital in excess of stated value 30,975,856 30,893,093
Retained earnings 13,534,967 9,217,448
Unrealized net holding gains on securities available for sale 1,008,015 530,809
------------ ------------
Total Shareholders' Equity 46,468,992 41,590,104
------------ ------------
Total Liabilities and Shareholders' Equity $615,281,658 $559,725,800
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 9,380,805 $ 7,591,231 $26,993,046 $ 21,995,899
Securities 2,527,214 2,499,325 7,704,506 7,044,914
Federal funds sold 33,128 20,275 204,575 75,353
----------- ------------ ----------- ------------
Total interest income 11,941,147 10,110,831 34,902,127 29,116,166
Interest expense:
Deposits 6,478,048 5,237,378 18,895,954 14,946,819
Short-term borrowings 347,733 471,602 956,788 1,431,945
----------- ------------ ----------- ------------
Total interest expense 6,825,781 5,708,980 19,852,742 16,378,764
----------- ------------ ----------- ------------
Net interest income 5,115,366 4,401,851 15,049,385 12,737,402
Provision for credit losses 240,000 240,000 720,000 680,000
----------- ------------ ----------- ------------
Net interest income after provision for credit losses 4,875,366 4,161,851 14,329,385 12,057,402
Other income:
Securities gains, net 5,496 (83,359) 13,302 (55,433)
Other 336,009 272,234 895,742 710,210
----------- ------------ ----------- ------------
Total other income 341,505 188,875 909,044 654,777
Other expenses:
Salaries and employee benefits 1,434,221 1,182,914 4,192,802 3,382,253
FDIC premiums 16,641 500 45,543 1,500
Equipment 180,355 104,114 414,179 305,141
Taxes other than income 97,269 137,716 301,033 401,616
Courier services 131,466 121,003 389,449 358,097
Net occupancy 87,054 43,549 234,939 116,133
Other 815,476 684,158 2,347,105 1,925,207
----------- ------------ ----------- ------------
Total other expenses 2,762,482 2,273,954 7,925,050 6,489,947
----------- ------------ ----------- ------------
Income before provision for federal income tax 2,454,389 2,076,772 7,313,379 6,222,232
Provision for federal income tax 790,000 658,000 2,350,000 1,976,000
----------- ------------ ----------- ------------
Net income $ 1,664,389 $ 1,418,772 $ 4,963,379 $ 4,246,232
=========== ============ =========== ============
Net income per share $ 0.84 $ 0.73 $ 2.52 $ 2.17
=========== ============ =========== ============
Average number of common shares and
common stock equivalents outstanding 1,970,410 1,954,773 1,969,625 1,957,784
=========== ============ =========== ============
</TABLE>
See Accompanying Notes
4
<PAGE> 5
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN UNREALIZED TOTAL
---------------------------- EXCESS OF RETAINED NET HOLDING SHAREHOLDERS'
SHARES AMOUNT STATED VALUE EARNINGS GAINS/(LOSSES) EQUITY
----------- ------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,897,508 $948,754 $30,893,093 $9,217,448 $530,809 $41,590,104
Net income 4,963,379 $4,963,379
Exercise of 1,022 common stock options
at $10.78 per share 1,022 511 10,506 $11,017
Issuance of 1778 shares of common stock 1,778 889 72,257 $73,146
Change in unrealized gains and (losses),
net of tax 477,206 $477,206
Cash dividend declared, $.34 per share (645,860) ($645,860)
----------------------------------------------------------------------------------------
Balance at September 30, 1997 1,900,308 $950,154 $30,975,856 $13,534,967 $1,008,015 $46,468,992
========================================================================================
Balance at January 1, 1996 1,777,727 $888,864 $27,136,543 $6,878,138 $1,232,517 $36,136,062
Net income 4,246,232 $4,246,232
Change in unrealized gains and (losses),
net of tax (1,751,081) ($1,751,081)
6% Stock Dividend 106,324 53,161 3,322,625 (3,386,568) ($10,782)
----------------------------------------------------------------------------------------
Balance at September 30, 1996 1,884,051 $942,025 $30,459,168 $7,737,802 ($518,564) $38,620,431
========================================================================================
</TABLE>
See Accompanying Notes
5
<PAGE> 6
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 4,963,379 $ 4,246,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 720,000 680,000
Depreciation and amortization 301,256 222,222
Amortization and accretion of security premiums and discounts (63,532) (36,381)
Loss (Gain) on sale of securities (13,302) 55,434
Deferred income taxes (244,800) (231,200)
Changes in assets and liabilities:
Increase in interest receivable and other assets (1,297,397) (1,442,709)
Increase in interest payable and other liabilities 1,369,097 1,054,838
------------ ------------
Total adjustments 771,322 302,204
------------ ------------
Net cash provided by operating activities 5,734,701 4,548,436
INVESTING ACTIVITIES:
Purchase of securities available for sale (28,708,336) (57,525,503)
Net increase in loans (47,798,067) (29,983,627)
Purchase of bank premises and equipment (3,702,466) (160,212)
Proceeds from maturities of securities available for sale 11,546,926 2,090,194
Proceeds from sales of securities available for sale 14,511,281 35,432,969
------------ ------------
Net cash used in investing activities (54,150,662) (50,146,179)
FINANCING ACTIVITIES:
Net increase in deposits 61,157,020 42,735,625
Net decrease in short-term borrowings (12,172,199) 4,626,622
Issuance of common stock 84,163 --
Dividends paid (322,808) (10,782)
------------ ------------
Net cash provided by financing activities 48,746,176 47,351,465
------------ ------------
Increase in cash and cash equivalents 330,215 1,753,722
Cash and cash equivalents at beginning of period 13,958,201 13,047,891
------------ ------------
Cash and cash equivalents at end of period $ 14,288,416 $ 14,801,613
============ ============
Supplemental disclosures:
Interest paid $ 19,383,415 $ 16,332,126
============ ============
Income taxes paid $ 2,225,000 $ 2,225,000
============ ============
Dividends declared $ 323,052 --
============ ============
</TABLE>
See Accompanying Notes
6
<PAGE> 7
CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
The unaudited consolidated financial statements include the accounts of Capital
Holdings, Inc. (the Company) and its wholly owned subsidiaries, Capital Bank,
N.A. (the Bank) and CBNA Building Company, which is a real estate subsidiary
that owns and leases to the Bank, its only operating facility.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements. For further information refer to the consolidated
financial statements and notes thereto appearing in the Company's annual report
on Form 10-K for the year ended December 31, 1996.
Net income per share has been computed by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding, after
giving retroactive effect to a six percent stock dividend issued during June
1996.
The Bank's maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at September 30, 1997 was $196,097,000 and
$13,489,000, respectively, compared to $122,403,000 and $9,407,000,
respectively, at December 31, 1996. The increase in loan commitments is due to
owner-occupied real estate construction to take place within the next twelve
months. Management does not anticipate any significant losses as a result of
these commitments.
7
<PAGE> 8
CAPITAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's primary asset is its subsidiary bank, which is in its ninth year
of operation. During the third quarter of 1997, the Bank experienced a minimal
decrease in net deposits. Deposits decreased $2,367,000 or 0.4% for the third
quarter and increased $61,157,000 or 13.0% for the nine months ended September
30, 1997.
Loan growth for the third quarter of 1997 was $5,375,000 or 1.3% and $47,078,000
or 12.6% for the nine months ended September 30, 1997. The allowance for credit
losses at September 30, 1997, was $6,662,000 or 1.6% of total loans, compared to
$5,942,000 or 1.6% of total loans at December 31, 1996. The Bank had no write
offs during the nine months ended September 30, 1997, the fourth consecutive
year with no loan write-offs, and has nonperforming loans of .12% of total loans
at September 30, 1997. Management considers the allowance to be adequate at this
time. At September 30, 1997, the Bank had no impaired loans.
Securities available for sale totaled $162,659,000 or 26.4% of total assets at
September 30, 1997. The Bank continues to maintain very high investment quality
with 77.0% of total securities in U.S. Treasury and Agency securities. The Bank
has no high-risk on or off balance-sheet derivatives. The total market value of
the portfolio increased $810,000 (net of tax) during the third quarter of 1997.
This is a reflection of the decrease in bond rates on both long and short-term
security maturities. The Bank's portfolio has a weighted average life to
maturity of approximately 2.1 years.
Consolidated net income for the third quarter of 1997 was $1,664,000 or $.84 per
share, and $4,963,000 or $2.52 per share for the nine months ended September 30,
1997. This compares to $1,419,000 or $.73 per share for the third quarter of
1996, and $4,246,000 or $2.17 per share for the nine months ended September 30,
1996, after giving retroactive effect to a six percent stock dividend issued
during June 1996. The increase in income before provision for federal income
taxes, excluding securities gains, for the nine months ended September 30, 1997,
represents a 16.3% increase over the same period of 1996. This increase is a
direct result of growth in earning assets and careful attention to noninterest
expenses. The income tax provision of 32% for the nine months ended September
30, 1997, remained comparable to the same period last year.
8
<PAGE> 9
CAPITAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Other expenses continue to increase as the Bank grows. Net overhead as a
percentage of average assets has increased only slightly from 1.74% for the year
ended December 31, 1996, to 1.78% for the nine months ended September 30, 1997.
Salaries and benefits represent 51.9% of other expenses for the nine months
ended September 30, 1997 compared to 52.0% for the nine months ended September
30, 1996. Salary expense for the nine months ended September 30, 1997, increased
24.0% over the same period for 1996. Staff levels have increased from 77 to 96
(full time equivalents) over the past 12 months, due in part to having
additional space available following completion of a building expansion project
over the past year. Average assets per employee has decreased from $6,702,000 at
December 31, 1996, to $6,615,000 at September 30, 1997.
The Tier I Capital ratio was 9.82%, the Total Capital ratio was 11.07%, and the
Leverage ratio was 7.48% at September 30, 1997, compared to regulatory capital
requirements of 4%, 8% and 4%, respectively. These ratios are well in excess of
the regulatory capital requirements.
Shareholders equity has continued to increase from retained earnings of net
income. A $.17 per share cash dividend was paid on July 25, 1997, another $.17
per share cash dividend was declared on September 30, 1997, payable on October
25, 1997. Annualized, this cash dividend represents 20% of the current years
projected earnings.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information, and SFAS No. 130, Reporting Comprehensive
Income. The Company expects that adoption of these Statements will not have a
significant impact on the consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. The
impact is expected to result in an increase from primary earnings per share to
basic earnings per share for the nine months ended September 30, 1997 and the
nine months ended September 30, 1996 of $.09 and $.08 per share, respectively.
The impact of Statement 128 on the calculation of fully diluted earnings per
share for these quarters is not material.
9
<PAGE> 10
CAPITAL HOLDINGS, INC.
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended September
30, 1997.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements for the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL HOLDINGS, INC.
Date 11/10/97 /s/ Michael P. Killian
------------------------ -------------------------------------------
Michael P. Killian, Chief Financial Officer,
Senior Vice President
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14288416
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 162659296
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 427958382
<ALLOWANCE> 6662377
<TOTAL-ASSETS> 615281658
<DEPOSITS> 531900112
<SHORT-TERM> 30158361
<LIABILITIES-OTHER> 6754193
<LONG-TERM> 0
0
0
<COMMON> 950154
<OTHER-SE> 45518838
<TOTAL-LIABILITIES-AND-EQUITY> 615281658
<INTEREST-LOAN> 26993046
<INTEREST-INVEST> 7909081
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 34902127
<INTEREST-DEPOSIT> 18895954
<INTEREST-EXPENSE> 19852742
<INTEREST-INCOME-NET> 15049385
<LOAN-LOSSES> 720000
<SECURITIES-GAINS> 13302
<EXPENSE-OTHER> 7925050
<INCOME-PRETAX> 7313379
<INCOME-PRE-EXTRAORDINARY> 7313379
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4963379
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.52
<YIELD-ACTUAL> 3.54
<LOANS-NON> 395000
<LOANS-PAST> 113000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5942377
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 6662377
<ALLOWANCE-DOMESTIC> 5412175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1250202
</TABLE>
