<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 JUNE 30, 1997
COMMISSION FILE NUMBER 33-46573
----------
CAPITAL HOLDINGS, INC.
----------------------
(Exact name of registrant as specified in its Charter)
OHIO 34-1588902
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5520 MONROE STREET, SYLVANIA, OH 43560
--------------------------------------
(Address of principal executive offices and zip code)
(419) 885-7379
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) YES X (2) NO
----- -----
As of June 30, 1997, there were 1,898,870 shares of common stock outstanding.
<PAGE> 2
CAPITAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (Unaudited):
Consolidated balance sheets
June 30, 1997 and December 31, 1996 3
Consolidated statements of income
Three months ended June 30, 1997 and 1996;
Six months ended June 30, 1997 and 1996 4
Consolidated statements of shareholders' equity
Six months ended June 30, 1997 and 1996 5
Consolidated statements of cash flows
Six months ended June 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
- ---------------------------
SIGNATURES 11
- ----------
</TABLE>
2
<PAGE> 3
CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
--------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,909,922 $ 13,958,201
Investment Securities Available for sale, at fair value 159,373,111 159,209,293
Loans 422,343,719 380,160,315
Less: Allowance for credit losses 6,422,377 5,942,377
------------ ------------
Net loans 415,921,342 374,217,938
Bank premises and equipment 8,934,012 6,010,385
Interest receivable and other assets 7,482,740 6,329,983
------------ ------------
Total Assets $608,621,127 $559,725,800
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $492,759,371 $430,324,792
Noninterest bearing 41,507,579 40,418,300
------------ ------------
Total deposits 534,266,950 470,743,092
Short-term borrowings 23,557,257 42,330,560
Interest payable and other liabilities 6,539,990 5,062,044
------------ ------------
Total Liabilities 564,364,197 518,135,696
SHAREHOLDERS' EQUITY
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized and 1,898,870 shares
issued and outstanding (1,897,508 in 1996) 949,435 948,754
Capital in excess of stated value 30,916,179 30,893,093
Retained earnings 12,193,630 9,217,448
Unrealized net holding gains on securities available for sale 197,686 530,809
------------ ------------
Total Shareholders' Equity 44,256,930 41,590,104
------------ ------------
Total Liabilities and Shareholders' Equity $608,621,127 $559,725,800
============ ============
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 9,135,409 $ 7,269,067 $17,612,241 $14,404,668
Securities 2,591,282 2,326,313 5,177,292 4,545,589
Federal funds sold 123,982 46,869 171,447 55,078
----------- ----------- ----------- -----------
Total interest income 11,850,673 9,642,249 22,960,980 19,005,335
Interest expense:
Deposits 6,508,100 4,884,358 12,417,906 9,709,441
Short-term borrowings 246,341 455,548 609,055 960,343
----------- ----------- ----------- -----------
Total interest expense 6,754,441 5,339,906 13,026,961 10,669,784
----------- ----------- ----------- -----------
Net interest income 5,096,232 4,302,343 9,934,019 8,335,551
Provision for credit losses 240,000 230,000 480,000 440,000
----------- ----------- ----------- -----------
Net interest income after provision for credit losses 4,856,232 4,072,343 9,454,019 7,895,551
Other income:
Securities gains, net 4,056 1,403 7,806 27,926
Other 295,371 237,668 559,733 437,976
----------- ----------- ----------- -----------
Total other income 299,427 239,071 567,539 465,902
Other expenses:
Salaries and employee benefits 1,424,006 1,127,684 2,758,581 2,199,339
FDIC premiums 15,084 500 28,902 1,000
Equipment 123,555 101,421 233,824 201,027
Taxes other than income 97,591 131,900 203,764 263,900
Courier services 130,697 120,664 257,983 237,094
Net occupancy 73,157 37,019 147,885 72,584
Other 796,296 663,998 1,531,629 1,241,049
----------- ----------- ----------- -----------
Total other expenses 2,660,386 2,183,186 5,162,568 4,215,993
----------- ----------- ----------- -----------
Income before provision for federal income tax 2,495,273 2,128,228 4,858,990 4,145,460
Provision for federal income tax 790,000 667,000 1,560,000 1,318,000
----------- ----------- ----------- -----------
Net income $ 1,705,273 $ 1,461,228 3,298,990 $ 2,827,460
=========== =========== =========== ===========
Net income per share $ 0.87 $ 0.75 $ 1.68 $ 1.44
=========== =========== =========== ===========
Average number of common shares and
common stock equivalents outstanding 1,969,586 1,959,306 1,969,226 1,959,306
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE> 5
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 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 3,298,990 $3,298,990
Exercise of 1,022 common stock options at $10.78 per share 1,022 511 10,506 $11,017
Issuance of 340 shares of common stock at $37.50 per share 340 170 12,580 $12,750
Change in unrealized gains and (losses), net of tax (333,123) ($333,123)
Cash dividend declared, $.17 per share (322,808) ($322,808)
--------------------------------------------------------------------------
Balance at June 30, 1997 1,898,870 $949,435 $30,916,179 $12,193,630 $197,686 $44,256,930
==========================================================================
Balance at January 1, 1996 1,777,727 $888,864 $27,136,543 $6,878,138 $1,232,517 $36,136,062
Net income 2,827,460 $2,827,460
Change in unrealized gains and (losses), net of tax (2,729,587) ($2,729,587)
6% Stock Dividend 106,324 53,161 3,322,625 (3,386,568) ($10,782)
--------------------------------------------------------------------------
Balance at June 30, 1996 1,884,051 $942,025 $30,459,168 $6,319,030 ($1,497,070) $36,223,153
==========================================================================
</TABLE>
See Accompanying Notes
5
<PAGE> 6
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,298,990 $ 2,827,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 480,000 440,000
Depreciation and amortization 158,854 147,554
Amortization and accretion of security premiums and discounts (54,413) (18,895)
Gain on sale of securities (7,806) (27,926)
Deferred income taxes (163,200) (149,600)
Changes in assets and liabilities:
Increase in interest receivable and other assets (817,949) (464,261)
Increase in interest payable and other liabilities 1,155,138 1,801,529
------------ ------------
Total adjustments 750,624 1,728,401
------------ ------------
Net cash provided by operating activities 4,049,614 4,555,861
INVESTING ACTIVITIES:
Purchase of securities available for sale (21,144,141) (42,421,478)
Net increase in loans (42,183,404) (8,676,533)
Purchase of bank premises and equipment (3,082,481) (96,916)
Proceeds from maturities of securities available for sale 10,531,764 2,066,156
Proceeds from sales of securities available for sale 10,006,047 27,016,392
------------ ------------
Net cash used in investing activities (45,872,215) (22,112,379)
FINANCING ACTIVITIES:
Net increase in deposits 63,523,858 22,912,283
Net decrease in short-term borrowings (18,773,303) (3,847,677)
Issuance of common stock 23,767 --
Dividends paid -- (10,782)
------------ ------------
Net cash provided by financing activities 44,774,322 19,053,824
------------ ------------
Increase in cash and cash equivalents 2,951,721 1,497,306
Cash and cash equivalents at beginning of period 13,958,201 13,047,891
------------ ------------
Cash and cash equivalents at end of period $ 16,909,922 $ 14,545,197
============ ============
Supplemental disclosures:
Interest paid $ 12,204,343 $ 10,567,581
============ ============
Income taxes paid $ 1,775,000 $ 1,500,000
============ ============
Dividends declared $ 322,808 --
============ ============
</TABLE>
See Accompanying Notes
6
<PAGE> 7
CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 June 30, 1997 was $165,573,000 and $13,412,000,
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 eighth year
of operation. During the second quarter and for the six months ended June 30,
1997, the Bank experienced a minimal decrease in net deposits. Deposits
decreased $1,608,000 or 0.3% for the second quarter and increased $63,524,000 or
13.5% during the first half of 1997.
Loan growth for the second quarter of 1997 was $14,471,000 or 3.5% and
$42,183,000 or 11.1% for the first half of 1997. The allowance for credit losses
at June 30, 1997, was $6,422,000 or 1.5% 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 first half of 1997, the fourth consecutive year with no loan write-offs, and
has nonperforming loans of .10% of total loans at June 30, 1997. Management
considers the allowance to be adequate at this time. At June 30, 1997, the Bank
had no impaired loans.
Securities available for sale totaled $159,373,000 or 26.2% of total assets at
June 30, 1997. The Bank continues to maintain very high investment quality with
76.4% of total securities in U.S. Treasury and Agency securities. The Bank has
no high-risk on or off balance-sheet derivatives. The total market value of the
portfolio increased $990,000 (net of tax) during the second 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 2.2 years.
Consolidated net income for the second quarter of 1997 was $1,705,000 or $.87
per share, and $3,299,000 or $1.68 per share for the first half of 1997. This
compares to $1,461,000 or $.75 per share for the second quarter of 1996, and
$2,827,000 or $1.44 per share for the first half of 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 first half of 1997, represents a 17.8% 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 first half of 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 1.76% for the first half of 1997. Salaries and
benefits represent 53.5% of other expenses for the second quarter of 1997
compared to 51.7% for the second quarter of 1996. Salary expense for the first
half of 1997, increased 25.4% over the same period for 1996. Staff levels have
increased from 76 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 nine months. Average assets per employee has
increased from $6,702,000 at December 31, 1996, to $6,784,000 at June 30, 1997.
The Tier I Capital ratio was 9.62%, the Total Capital ratio was 10.87%, and the
Leverage ratio was 7.28% at June 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 declared on June 30, 1997, payable on
July 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 first half of 1997 and the first half of 1996
of $.06 and $.06 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Shareholders Meeting held on April 17, 1997, pursuant to the
attached Notice of Annual Meeting and Proxy Statement dated March 20, 1997:
1) each of the five nominees were elected as directors
(1,372,966 votes for, 18,140 votes against, 7,520
votes abstained and 500,216 votes not voted).
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 June
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 8/11/97 /s/ Michael P. Killian
---------------- -----------------------------------------------
Michael P. Killian, Chief Financial Officer,
Senior Vice President
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,909,922
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,373,111
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 422,343,719
<ALLOWANCE> 6,422,377
<TOTAL-ASSETS> 608,621,127
<DEPOSITS> 534,266,950
<SHORT-TERM> 23,557,257
<LIABILITIES-OTHER> 6,539,990
<LONG-TERM> 0
<COMMON> 949,435
0
0
<OTHER-SE> 43,307,495
<TOTAL-LIABILITIES-AND-EQUITY> 608,621,127
<INTEREST-LOAN> 17,612,241
<INTEREST-INVEST> 5,348,739
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 22,960,980
<INTEREST-DEPOSIT> 12,417,906
<INTEREST-EXPENSE> 13,026,961
<INTEREST-INCOME-NET> 9,934,019
<LOAN-LOSSES> 480,000
<SECURITIES-GAINS> 7,806
<EXPENSE-OTHER> 5,162,568
<INCOME-PRETAX> 4,858,990
<INCOME-PRE-EXTRAORDINARY> 4,858,990
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,298,990
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 3.56
<LOANS-NON> 408,000
<LOANS-PAST> 9,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,942,377
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 6,422,377
<ALLOWANCE-DOMESTIC> 5,396,600
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,025,777
</TABLE>
