<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) YES X (2) NO
----- -----
As of March 31, 1997, there were 1,898,842 shares of common stock outstanding.
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CAPITAL HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
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<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated balance sheets
March 31, 1997 and December 31, 1996 3
Consolidated statements of income
Three months ended March 31, 1997 and 1996 4
Consolidated statements of shareholders' equity
Three months ended March 31, 1997 and 1996 5
Consolidated statements of cash flows
Three months ended March 31, 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
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CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
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ASSETS
<S> <C> <C>
Cash and due from banks $ 17,060,835 $ 13,958,201
Investment Securities Available for sale, at fair value 165,782,801 159,209,293
Loans 407,872,522 380,160,315
Less: Allowance for credit losses 6,182,377 5,942,377
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Net loans 401,690,145 374,217,938
Bank premises and equipment 8,073,764 6,010,385
Interest receivable and other assets 8,037,613 6,329,983
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Total Assets $ 600,645,158 $ 559,725,800
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing $ 494,788,095 $ 430,324,792
Noninterest bearing 41,086,649 40,418,300
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Total deposits 535,874,744 470,743,092
Short-term borrowings 17,108,015 42,330,560
Interest payable and other liabilities 5,779,179 5,062,044
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Total Liabilities 558,761,938 518,135,696
SHAREHOLDERS' EQUITY
Common stock, no par value, $.50 stated value;
3,000,000 shares authorized and 1,898,842 shares
issued and outstanding (1,897,508 in 1996) 949,421 948,754
Capital in excess of stated value 30,915,143 30,893,093
Retained earnings 10,811,165 9,217,448
Unrealized net holding gains (losses) on securities available for sale (792,509) 530,809
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Total Shareholders' Equity 41,883,220 41,590,104
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Total Liabilities and Shareholders' Equity $ 600,645,158 $ 559,725,800
============= =============
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
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<S> <C> <C>
Interest income:
Loans, including fees $ 8,476,832 $ 7,135,601
Securities 2,586,010 2,219,276
Federal funds sold 47,465 8,209
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Total interest income 11,110,307 9,363,086
Interest expense:
Deposits 5,909,806 4,825,083
Short-term borrowings 362,714 504,795
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Total interest expense 6,272,520 5,329,878
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Net interest income 4,837,787 4,033,208
Provision for credit losses 240,000 210,000
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Net interest income after provision for credit losses 4,597,787 3,823,208
Other income:
Securities gains, net 3,750 26,523
Other 264,362 200,308
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Total other income 268,112 226,831
Other expenses:
Salaries and employee benefits 1,334,575 1,071,655
FDIC premiums 13,818 500
Equipment 110,269 99,606
Taxes other than income 106,173 132,000
Courier services 127,286 116,430
Net occupancy 74,728 35,565
Other 735,333 577,051
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Total other expenses 2,502,182 2,032,807
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Income before provision for federal income tax 2,363,717 2,017,232
Provision for federal income tax 770,000 651,000
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Net income $ 1,593,717 $ 1,366,232
=========== ===========
Net income per share $ 0.81 $ 0.70
=========== ===========
Average number of common shares and
common stock equivalents outstanding 1,968,861 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 1,593,717 $1,593,717
Exercise of 1,022 common stock options at $10.78 per share 1,022 511 10,506 $11,017
Issuance of 312 shares of common stock at $37.50 per share 312 156 11,544 $11,700
Change in unrealized gains and (losses), net of tax (1,323,318) ($1,323,318)
==========================================================================
Balance at March 31, 1997 1,898,842 $949,421 $30,915,143 $10,811,165 ($792,509) $41,883,220
=========================================================================
Balance at January 1, 1996 1,777,727 $888,864 $27,136,543 $6,878,138 $1,232,517 $36,136,062
Net income 1,366,232 $1,366,232
Change in unrealized gains and (losses), net of tax (1,140,049) ($1,140,049)
=========================================================================
Balance at March 31, 1996 1,777,727 $888,864 $27,136,543 $8,244,370 $92,468 $36,362,245
=========================================================================
</TABLE>
See Accompanying Notes
5
<PAGE> 6
CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,593,717 $ 1,366,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses 240,000 210,000
Depreciation and amortization 78,086 73,397
Amortization and accretion of security premiums and discounts (38,283) (10,243)
Gain on sale of securities (3,750) (26,522)
Deferred income taxes (81,600) (71,400)
Changes in assets and liabilities:
Increase in interest receivable and other assets (944,321) (877,813)
Increase in interest payable and other liabilities 717,135 482,760
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Total adjustments (32,733) (219,821)
------------ ------------
Net cash provided by operating activities 1,560,984 1,146,411
INVESTING ACTIVITIES:
Purchase of securities available for sale (14,044,592) (29,429,089)
Net increase in loans (27,712,207) (3,924,080)
Purchase of bank premises and equipment (2,141,464) (53,179)
Proceeds from maturities of securities available for sale 4,504,339 546,299
Proceeds from sales of securities available for sale 1,003,750 23,020,297
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Net cash used in investing activities (38,390,174) (9,839,752)
FINANCING ACTIVITIES:
Net increase in deposits 65,131,652 1,732,471
Net increase (decrease) in short-term borrowings (25,222,545) 6,635,777
Issuance of common stock 22,717 --
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Net cash provided by financing activities 39,931,824 8,368,248
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Increase in cash and cash equivalents 3,102,634 (325,093)
Cash and cash equivalents at beginning of period 13,958,201 13,047,891
------------ ------------
Cash and cash equivalents at end of period $ 17,060,835 $ 12,722,798
============ ============
Supplemental disclosures:
Interest paid $ 6,083,172 $ 5,284,996
============ ============
Income taxes paid $ 100,000 $ 150,000
============ ============
</TABLE>
See Accompanying Notes
6
<PAGE> 7
CAPITAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 March 31, 1997 was $142,182,000 and $9,386,000,
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. For the three months ended March 31, 1997, the Bank experienced
significant growth in net deposits. Deposits increased $65,132,000 or 13.8%
during the first quarter of 1997.
Loan growth for the first quarter of 1997 was $27,712,000 or 7.3%. The allowance
for credit losses at March 31, 1997, was $6,182,000 compared to $5,942,000 at
December 31, 1996. The Bank had no write offs during the three months ended
March 31, 1997, and has nonperforming loans of less than 1% of total loans at
March 31, 1997. Management considers the allowance to be adequate at this time.
At March 31, 1997, the Bank had no impaired loans.
Securities available for sale totaled $165,783,000 or 27.6% of total assets at
March 31, 1997. The Bank continues to maintain very high investment quality with
74.1% 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 decreased $1,323,000 (net of tax) during the first quarter of 1997.
This is a reflection of the increase in bond rates on both long and short-term
security maturities. During the first half of 1996, the Company repositioned
approximately 16% of the securities portfolio by selling callable and/or
short-term maturity securities, and investing in longer maturity securities to
take advantage of the increase in rates. The Bank's portfolio has a weighted
average life to maturity of approximately 2.1 years.
Consolidated net income for the first quarter of 1997 was $1,594,000 or $.81 per
share. This compares to $1,366,000 or $.70 per share for the first quarter 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 three months ended March 31, 1997,
represents an 18.5% 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 three months ended March 31,
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
In February 1997, the Financial Accounting Standards Board issued Statement 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
quarter ended March 31, 1997 and March 31, 1996 of $.03 and $.03 per share,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not material.
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 three months ended March 31, 1997.
Salaries and benefits represent 53.3% of other expenses for the first quarter of
1997 compared to 52.7% for the first quarter of 1996. Salary expense for the
three months ended March 31, 1997, increased 24.5% over the same period for
1996. Staff levels have increased from 69 to 86 (full time equivalents) over the
past 12 months. Average assets per employee continues to increase to $7,045,000
at March 31, 1997, compared to $6,702,000 at December 31, 1996.
On August 8, 1995, The Federal Deposit Insurance Corporation (FDIC) voted to
reduce the premiums banks pay on deposits. The Bank's 1996 assessment rate is
zero; however, the FDIC has mandated that Bank's with a zero assessment rate
must pay a minimum semiannual assessment of $1,000. Beginning in 1997, the
annual assessment rate increased to 1.3 basis points.
The Tier I Capital ratio was 9.65%, the Total Capital ratio was 10.90%, and the
Leverage ratio was 7.42% at March 31, 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. The $1.3 million negative change in the unrealized gain on the
securities available for sale portfolio, net of tax, for the three months ended
March 31, 1997, is due to the relative short average life of the bond portfolio
and the rising rates in the bond market for both short and long-term security
maturities.
9
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CAPITAL HOLDINGS, INC.
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the quarter ended
March 31, 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 5/12/97 /s/ Michael P. Killian
--------------- --------------------------------------------
Michael P. Killian, Chief Financial Officer,
Senior Vice President
11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,060,835
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 166,782,801
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 407,872,522
<ALLOWANCE> 6,182,377
<TOTAL-ASSETS> 600,645,158
<DEPOSITS> 535,874,744
<SHORT-TERM> 17,108,015
<LIABILITIES-OTHER> 5,779,179
<LONG-TERM> 0
<COMMON> 949,421
0
0
<OTHER-SE> 40,933,799
<TOTAL-LIABILITIES-AND-EQUITY> 600,645,158
<INTEREST-LOAN> 8,476,832
<INTEREST-INVEST> 2,633,475
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,110,307
<INTEREST-DEPOSIT> 5,909,806
<INTEREST-EXPENSE> 6,272,520
<INTEREST-INCOME-NET> 4,837,787
<LOAN-LOSSES> 240,000
<SECURITIES-GAINS> 3,750
<EXPENSE-OTHER> 2,502,182
<INCOME-PRETAX> 2,363,717
<INCOME-PRE-EXTRAORDINARY> 2,363,717
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,593,717
<EPS-PRIMARY> .84
<EPS-DILUTED> .81
<YIELD-ACTUAL> 3.57
<LOANS-NON> 427,915
<LOANS-PAST> 30,696
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,942,377
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 6,182,377
<ALLOWANCE-DOMESTIC> 5,409,695
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 772,682
</TABLE>
