<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
------------ -------------
Commission file number 33-24728C
CAPITOL BANCORP LTD.
(Exact name of issuer as specified in its charter)
MICHIGAN 38-2761672
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
200 WASHINGTON SQUARE NORTH, LANSING, MICHIGAN
(Address of principal executive offices)
(517) 487-6555
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common stock, No par value: 3,543,966 shares outstanding as of May 6, 1996.
Page 1 of 17
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated balance sheets - March 31, 1996
and December 31, 1995.
Consolidated statements of income - Three months ended
March 31, 1996 and 1995.
Consolidated statements of cash flows - Three months
ended March 31, 1996 and 1995.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
Page 2 of 17
<PAGE> 3
PART I, ITEM I
CAPITOL BANCORP LTD.
Consolidated Balance Sheets
As of March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------- -----------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,836 $ 14,715
Interest-bearing deposits with banks 54 16
Federal funds sold 17,900 30,600
-------- --------
Cash and cash equivalents 32,790 45,331
Loans held for resale 12,232 7,030
Investment securities:
Available for sale, carried at market value 34,085 34,546
Held for long-term investment, carried at
amortized cost which approximates market value 1,875 1,783
-------- --------
Total investment securities 35,960 36,329
Portfolio loans:
Commercial 236,912 222,161
Real estate mortgage 49,509 48,954
Installment 12,239 12,356
-------- --------
Total portfolio loans 298,660 283,471
Less allowance for loan losses (3,921) (3,687)
-------- --------
Net portfolio loans 294,739 279,784
Investment in and advances to Amera Mortgage Corporation 3,070 3,077
Premises and equipment 2,502 2,438
Accrued interest income 2,556 2,634
Excess of cost over net assets of acquired subsidiaries 2,492 2,540
Other assets 5,393 4,907
-------- --------
TOTAL ASSETS $391,734 $384,070
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 43,398 $ 43,797
Interest-bearing 297,899 296,490
-------- --------
Total deposits 341,297 340,287
Accrued interest on deposits and
other liabilities 4,161 4,206
Debt obligations 14,012 8,712
-------- --------
Total liabilities 359,470 353,205
STOCKHOLDERS' EQUITY
Common stock, no par value: 10,000,000
shares authorized;
issued and outstanding: 1996 - 3,508,162
1995 - 3,395,288 23,089 22,150
Retained earnings 9,203 8,414
Market value adjustment (net of tax effect) for
investment securities available for sale 84 413
-------- --------
32,376 30,977
Less note payable by ESOP (112) (112)
-------- --------
Total stockholders' equity 32,264 30,865
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $391,734 $384,070
======== ========
</TABLE>
Page 3 of 17
<PAGE> 4
CAPITOL BANCORP LTD.
Consolidated Statements of Income
For the Three Months Ended March 31, 1996 and 1995
(in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Interest income:
Portfolio loans (including fees) $7,221 $5,934
Loans held for resale 125 44
Taxable investment securities 518 470
Federal funds sold 321 225
Interest-bearing deposits with banks 16 2
Other interest income 3 17
Dividends on investment securities 284
------ ------
Total interest income 8,488 6,692
Interest expense:
Demand deposits 547 544
Savings deposits 318 324
Time deposits 3,146 2,191
Debt obligations 183 126
Other 6
------ ------
Total interest expense 4,194 3,191
------ ------
Net interest income 4,294 3,501
Provision for loan losses 217 139
------ ------
Net interest income after
provision for loan losses 4,077 3,362
Noninterest income:
Service charges on deposit accounts 179 112
Trust fee income 64 49
Mortgage loan origination fee income and
net servicing income 236
Other 41 76
------ ------
Total noninterest income 284 473
Noninterest expense:
Salaries and employee benefits 1,414 1,366
Occupancy 210 238
Equipment rent, depreciation and maintenance 115 209
Deposit insurance premiums 32 159
Other 968 990
------ ------
Total noninterest expense 2,739 2,962
------ ------
Income before federal income taxes 1,622 873
Federal income taxes 521 336
------ ------
NET INCOME $1,101 $ 537
====== ======
NET INCOME PER SHARE $.28 $.16
====== ======
</TABLE>
Page 4 of 17
<PAGE> 5
CAPITOL BANCORP LTD.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,101 $ 537
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 217 139
Depreciation of premises and equipment 137 138
Amortization of mortgage servicing rights 101
Amortization of excess of cost over net assets of
acquired subsidiaries 48 85
Net amortization of investment security premiums 25 6
Gain (loss) on sale of premises and equipment 6 (4)
Originations and purchases of loans held for resale (41,083) (9,364)
Proceeds from sales of loans held for resale 35,881 10,269
Decrease (increase) in accrued interest income
and other assets (251) 3,211
Increase (decrease) in accrued interest
and other liabilities (45) 3
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES (3,964) 5,121
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available for sale 1,665
Proceeds from maturities of investment securities 7,011 1,895
Purchases of investment securities (8,811) (2,796)
Net increase in portfolio loans (15,172) (7,660)
Proceeds from sales of premises and equipment 4 13
Purchases of premises and equipment (211) (101)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (15,514) (8,649)
FINANCING ACTIVITIES
Net payments on debt obligations 5,300 (2,000)
Net proceeds from issuance of common stock 939 1,044
Cash dividends paid (312) (231)
Increase (decrease) in demand deposits, NOW
accounts and savings accounts 1,442 (13,380)
Increase (decrease) in certificates of deposit (432) 33,186
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,937 18,619
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,541) 15,091
Cash and cash equivalents at beginning of period 45,331 24,211
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $32,790 $39,302
======= =======
</TABLE>
Page 5 of 17
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CAPITOL BANCORP LTD.
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements of
Capitol Bancorp Ltd. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-QSB. Accordingly, they do not include all information
and footnotes necessary for a fair presentation of consolidated financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The statements do, however, include all adjustments of a normal
recurring nature (in accordance with Rule 10-01(b)(8) of Regulation S-X) which
the Corporation considers necessary for a fair presentation of the interim
periods.
The results of operations for the three-month period ended March 31,
1996 are not necessarily indicative of the results to be expected for the year
ending December 31, 1996.
The consolidated balance sheet as of December 31, 1995 was derived
from audited consolidated financial statements as of that date.
Note B - Implementation of New Accounting Standards
Financial Accounting Standards Board Statement No. 122, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", establishes new guidelines for accounting and measurement of
potential impairment of certain long-lived assets, including intangibles and
goodwill, among other things. This new standard became effective for the
Corporation January 1, 1996 and requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the Statement
requires the use of estimates of future cash flows and other estimates of fair
value.
Implementation of this new accounting standard had no impact on the
Corporation's financial position or results of operations for the period ended
March 31, 1996.
Note C - Sale of Majority Interest in Mortgage Banking Unit
Effective March 31, 1995, the Corporation sold a 51% interest in
Mortgage Connection, Inc. ("MCI", previously a wholly-owned mortgage banking
subsidiary acquired in 1992 and engaged in the origination, sale and servicing
of residential mortgage loans) to
6 of 17
<PAGE> 7
an individual. The purchase transaction resulted in no gain or loss and under
certain circumstances, the majority owner and the Corporation each have the
right to purchase the other party's interest in the mortgage company. The
Corporation has retained a 49% interest in the mortgage company and appoints
two persons to its five-member board of directors. The majority owner of the
mortgage company (subsequently its President and CEO) appoints the other three
board members.
Subsequent to March 31, 1995, MCI changed its name to Amera Mortgage
Corporation. For periods after March 31, 1995, the Corporation's remaining
investment in Amera Mortgage Corporation is accounted for under the equity
method of accounting for its pro rata share of the mortgage company's net
income or loss. If such sale had occurred at the beginning of 1995, net income
would have approximated $591,000 ($.18 per share) at March 31, 1995.
Note D - Prospective Impact of New Accounting Standards Not Yet
Adopted
Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation", revises the accounting recognition of
compensation expense for compensatory stock options and related disclosures.
This new standard permits alternative expense recognition using certain option
valuation models. For companies electing to continue past expense recognition
practices (which the Corporation expects to implement), certain expanded
proforma disclosures of expense amounts and earnings are required using those
valuation models (as if the alternative expense methods had been implemented).
Management has not completed its analysis of this new accounting standard,
which is expected to result in expanded disclosures to be made for the
Corporation effective December 31, 1996.
A variety of proposed or otherwise potential accounting standards are
currently under study by the accounting profession and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether such proposed standards would
be material to the Corporation's financial statements.
7 of 17
<PAGE> 8
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total assets amounted to $391.7 million at March 31, 1996, an increase
of $7.6 million from the December 31, 1995 level of $384.1 million. The
consolidated balance sheets include the Corporation and its banking
subsidiaries, Capitol National Bank, Portage Commerce Bank, Ann Arbor Commerce
Bank, Oakland Commerce Bank, Paragon Bank & Trust and, effective May 1, 1995,
Grand Haven Bank. The financial statements also include a mortgage subsidiary,
previously consolidated, for which a majority interest was sold effective March
31, 1995.
Cash and cash equivalents decreased $12.5 million for the three-month
period, primarily due to lower levels of federal funds sold utilized to fund
portfolio loan growth.
The net increase in portfolio loans for the three-month period
approximated $15 million. The majority of portfolio loan growth occurred in
commercial loans which increased approximately $14.8 million.
Loans held for resale increased approximately $5.2 million. This
increase was funded through the purchase of federal funds and bank borrowings
from secured lines of credit.
The allowance for loan losses at March 31, 1996 approximated $3.9
million or 1.31% of total portfolio loans, a slight increase from the year-end
1995 ratio of 1.30%. The allowance for loan losses is maintained at a level
believed adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the allowance is
based on evaluation of the portfolio (including volume, amount and composition,
potential impairment of individual loans and concentrations of credit), past
loss experience, current economic conditions, loan commitments outstanding and
other factors.
8 of 17
<PAGE> 9
The table below summarizes portfolio loan balances and activity in the
allowance for loan losses for the interim periods (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Allowance for loan losses at January 1 $ 3,687 $ 3,220
Loans charged-off:
Commercial 11 107
Installment 10 7
-------- --------
Total charge-offs 21 114
Recoveries:
Commercial 38 10
Real estate 1
Installment 11
-------- --------
Total recoveries 38 22
-------- --------
Net charge-offs (recoveries) (17) 92
Additions to allowance charged to expense 217 139
-------- --------
Allowance for loan losses at March 31 $ 3,921 $ 3,267
======== ========
Average total portfolio loans for period ended March 31 $289,176 $243,830
======== ========
Ratio of net charge-offs to average portfolio
loans outstanding n/m 0.04%
======== ========
</TABLE>
n/m - not meaningful.
The allowance for loan losses is a general allowance for the
Corporation's loan portfolio. For internal purposes, management allocates the
allowance to all loan classifications. The amounts allocated in the following
table (in thousands), which includes all loans for which, based on the
Corporation's loan rating system management has concerns, should not be
interpreted as an indication of future charge-offs. In addition, amounts
allocated are not intended to reflect the amount that may be available for
future losses, since the allowance is a general allowance.
<TABLE>
<CAPTION>
March 31
------------------------------------------------------
1996 1995
-------------------------- -----------------------
% %
Total Total
Portfolio Portfolio
Loans Loans
---------- ---------
<S> <C> <C> <C> <C>
Commercial $ 1,827 .61% $ 1,835 .74%
Real estate mortgage 107 .03 110 .04
Installment 56 .02 50 .02
Unallocated 1,931 .65 1,272 .51
--------- ------ ---------- ------
Total allowance for loan losses $ 3,921 1.31% $ 3,267 1.31%
========= ====== ---------- ======
Total portfolio
loans outstanding $ 298,660 $ 249,151
========= ==========
</TABLE>
In addition to the allowance for loan losses, certain loans are
enrolled in a state government loan program and have additional reserves
established to provide for loss protection. At March 31, 1996, total loans
under this program approximated $12.4 million. Reserves related to these
loans, which are represented by earmarked funds on deposit at the banks,
approximated $1.3 million and are not included in the recorded allowance for
loan losses.
Impaired loans (i.e., loans for which there is a reasonable
probability that borrowers would be unable to repay all principal and interest
due under the contractual terms of the loan documents) were not material in
1995 and through March 31, 1996. Nonperforming loans (i.e., loans which are 90
days or more past due and loans on nonaccrual status) at March 31, 1996
amounted to $1.55
9 of 17
<PAGE> 10
million compared with $1.34 million at December 31, 1995 as summarized in the
following table:
<TABLE>
<CAPTION>
March 31 Dec 31
1996 1995
-------- --------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 704 $ 438
Real estate 420 115
Installment 53 28
-------- --------
Total nonaccrual loans 1,177 581
Past due (>90 days) loans:
Commercial 228 379
Real estate 50 299
Installment 94 82
-------- --------
Total past due loans 372 760
-------- --------
Total nonperforming loans $ 1,549 $ 1,341
======== ========
</TABLE>
If nonperforming loans (including loans in nonaccrual status) had
performed in accordance with their contractual terms during the period,
additional interest income of $21,500 and $37,000 would have been recorded for
the three months ended March 31, 1996 and 1995, respectively. Interest income
recognized on loans in nonaccrual status for the period approximated $10,600
and $4,100, respectively.
Other real estate owned (generally real estate acquired through
foreclosure or a deed in lieu of foreclosure and classified as a component of
other assets) approximated $934,000 at March 31, 1996, a decrease of $38,000
from the year end 1995 level of $972,000.
The following comparative analysis summarizes each bank's total
portfolio loans, allowance for loan losses, nonperforming assets and certain
ratios (dollars in thousands):
<TABLE>
<CAPTION>
Allowance as a
Percentage of
Total Allowance for Nonperforming Total
Portfolio Loans Loan Losses Loans Portfolio Loans
-------------------- ----------------- ----------------- -----------------
March 31 Dec 31 March 31 Dec 31 March 31 Dec 31 March 31 Dec 31
1996 1995 1996 1995 1996 1995 1996 1995
--------- --------- -------- ------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ann Arbor Commerce Bank $ 63,054 $ 58,869 $ 826 $ 765 $ 359 $ 147 1.31% 1.30%
Capitol National Bank 75,908 75,468 1,116 1,058 415 396 1.47 1.40
Grand Haven Bank 17,411 14,630 184 155 --- --- 1.06 1.06
Oakland Commerce Bank 48,633 46,146 586 552 446 448 1.20 1.20
Paragon Bank & Trust 42,925 41,288 511 494 --- --- 1.19 1.20
Portage Commerce Bank 49,529 45,870 698 663 329 350 1.41 1.45
Other, net 1,200 1,200 --- --- --- --- --- ---
--------- --------- -------- ------- -------- ------- ------- -----
Consolidated $ 298,660 $ 283,471 $ 3,921 $ 3,687 $ 1,549 $ 1,341 1.31% 1.30%
========= ========= ======== ======= ======== ======= ======= =====
</TABLE>
Noninterest-bearing deposits approximated 12.7% of total deposits at
March 31, 1996, a slight decrease from the December 31, 1995 level of 12.9%.
The decline in the ratio of noninterest-bearing deposits in 1996 relates
primarily to escrow and custodial funds associated with mortgage servicing
activities of the mortgage affiliate placed on deposit at one of the
Corporation's banks.
10 of 17
<PAGE> 11
Results of Operations
Net income for the three months ended March 31, 1996 amounted to
$1,101,000 ($.28 per share), more than double the $537,000 ($.16 per share)
earned during the corresponding period of 1995. Net income for 1996 was
favorably impacted by dividend income, higher interest margins and fees and
lower deposit insurance premiums. Operating results (in thousands) were as
follows:
<TABLE>
<CAPTION>
Three months ended March 31
-------------------------------------------------------------------
Return on Return on
Total Assets Net Income Beginning Equity Average Assets
--------------------- -------------------- -------------------- --------------------
March 31 Dec 31
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ann Arbor Commerce Bank $ 77,922 $ 75,954 $ 277 $ 180 22.55% 17.6% 1.46% 1.24%
Capitol National Bank 96,348 97,622 374 257 20.68 15.99 1.54 1.18
Grand Haven Bank (1) 23,232 20,930 56 n/a 8.49 n/a 1.03 n/a
Oakland Commerce Bank 65,030 61,469 211 117 16.24 8.49 1.38 .84
Paragon Bank & Trust 54,964 56,064 130 87 10.29 8.56 .95 .64
Portage Commerce Bank 65,904 64,019 265 200 22.37 19.71 1.66 1.46
-------- -------- ------- ------- ------- ------- ------- -------
Total Banks 383,400 396,058 1,313 841 17.63 13.92 1.40 1.07
Mortgage Banking (2) 3,070 3,077 ( 37) (106) n/a n/a n/a n/a
Other, net 5,264 4,935 ( 175) (198) n/a n/a n/a n/a
-------- -------- ------- ------- ------- ------- ------- -------
Consolidated $391,734 $384,070 $ 1,101 $ 537 14.27% 8.36% 1.15% 0.67%
======== ======== ======= ======= ======= ======= ======= =======
</TABLE>
n/a - Not applicable.
(1) - Grand Haven Bank (formerly a branch of Paragon Bank & Trust) commenced
operations effective May 1, 1995.
(2) - Effective March 31, 1995, the Corporation sold a majority interest in
Amera Mortgage Corporation (formerly Mortgage Connection, Inc.,
acquired in 1992); for periods after March 31, 1995, the Corporation's
remaining investment (49%) has been accounted for under the equity
method.
Earnings performance of the Corporation's banks in 1996 has thus far
been strong.
Net interest income increased 22.7% during the three-month 1996 period
versus the corresponding period of 1995. The growth in net interest income was
primarily the result of certain nonrecurring dividends in March 1996. In
addition, 1996 results include the operations of Grand Haven Bank (formerly a
branch of the Paragon Bank & Trust subsidiary), which has contributed favorably
to earnings.
Effective March 31, 1995, the Corporation sold a 51% interest in
Mortgage Connection, Inc. ("MCI") (previously a wholly-owned mortgage banking
subsidiary acquired in 1992 and engaged in the origination, sale and servicing
of residential mortgage loans) to an individual. This transaction resulted in
no gain or loss. The effect of the sale and lower level of investment, coupled
with improved operating results of the mortgage unit, reduced its adverse
effect on earnings in the 1996 period.
Noninterest income decreased significantly in 1996 to $284,000 for the
three-month period, as compared with $473,000 for the corresponding 1995
period, primarily due to inclusion of the mortgage unit's revenues for the
first quarter of 1995. Net of this effect, noninterest income increased
$46,000 (19.4%) from 1995 levels.
11 of 17
<PAGE> 12
The provision for loan losses amounted to $217,000 for the three-month
1996 period as compared to $139,000 for the corresponding period of 1995. The
increased interim provision for loan losses in 1996 compared to the interim
1995 period relates primarily to portfolio growth. The provision for loan
losses is based on management's analysis of the loan portfolio as discussed
elsewhere herein.
Noninterest expense for the three months ended March 31, 1996
approximated $2.7 million compared with $3.0 million in 1995. Most of the
decrease in noninterest expense is associated with the mortgage unit's
operations which were included in consolidated amounts through March 31, 1995
($468,000), and a decrease in federal deposit insurance premiums ($127,000).
Liquidity and Capital Resources
Cash and cash equivalents amounted to $32.8 million or 8.4% of total
assets at March 31, 1996 as compared with $45.3 million or 11.8% of total
assets at December 31, 1995. The change is primarily the result of funds
deployed into commercial portfolio loans. Liquidity levels vary continuously
based on customer activities and, accordingly, amounts of cash and cash
equivalents can vary widely at any point in time. Management believes the
Corporation's liquidity position at March 31, 1996 is adequate to fund loan
demand and meet depositor needs.
In addition to cash and cash equivalents, a source of long-term
liquidity is the Corporation's marketable investment securities. The
Corporation's liquidity requirements have not historically necessitated the
sale of investments in order to meet liquidity needs. It also has not engaged
in active trading of its investments and has no intention of doing so in the
foreseeable future. At March 31, 1996 and December 31, 1995, the Corporation
had approximately $34 million of investment securities classified as available
for sale which can be utilized to meet various liquidity needs as they arise.
At March 31, 1996, the Corporation had lines of credit from an
unrelated financial institution aggregating $10 million. Under this credit
facility, borrowings outstanding approximated $4.9 million at March 31, 1996
($5.6 million at December 31, 1995). Under the terms of the credit agreement,
$8 million is convertible into long-term notes; $2 million of the lines of
credit are revolving in nature and are reviewed annually for continuance.
In addition, Oakland Commerce Bank had borrowings of $1.1 million of
federal funds purchased from an unrelated financial institution as of March 31,
1996. The Bank also had borrowings outstanding of $8 million and $4.4 million
of additional availability at March 31, 1996 in the form of secured lines of
credit.
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<PAGE> 13
Certain recent transactions have increased the Corporation's capital
and stockholders' equity in 1996.
In conjunction with the 1994 merger of Paragon Bank & Trust and its
parent, Financial Center Corporation, approximately 743,000 warrants were
issued. Each warrant enables the holder to purchase one share of the
Corporation's common stock at an exercise price of $8.99 per warrant. During
the period ended March 31, 1996, approximately 42,000 warrants were exercised,
resulting in proceeds to the Corporation of $374,000. In addition, the
exercise of 64,058 stock options resulted in additional proceeds during the
period of $400,000. At March 31, 1996, 642,500 warrants relating to the 1994
merger transaction remained outstanding. The warrants expire as follows:
467,500 on June 30, 1996 and 175,000 on June 30, 1997. If all remaining
warrants were exercised, the Corporation would receive additional cash and
capital approximating $5.8 million and issue 642,500 shares of previously
unissued common stock, although there is no assurance that such warrants will
be exercised. Stockholders' equity also increased in 1996 through net income,
less dividends paid.
The Corporation's Board of Directors recently approved a cash dividend
of $.09 per share payable June 1, 1996 to shareholders of record as of May 1,
1996 following a previous dividend of $.09 per share paid on March 1, 1996.
The dividend amount in 1996 represents an increase over the $.07 per share paid
quarterly in 1995.
As discussed previously, certain investment securities are designated
as "available for sale" and, accordingly, are adjusted to market value at the
balance sheet date (net of corresponding tax effect). Changes in market values
of such investment securities decreased stockholders' equity by $329,000 for
the three months ended March 31, 1996.
The Corporation and its banks are subject to complex regulatory capital
requirements which require maintaining minimum capital ratios. These ratio
measurements, in addition to certain other requirements, are used by regulatory
agencies to determine the level of regulatory intervention and enforcement
applied to financial institutions. The Corporation and each of its banks are
in compliance with the regulatory requirements and management expects to
maintain such compliance.
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<PAGE> 14
Capital, as a percentage of total assets, approximated 8.2% at March
31, 1996, a slight increase from the beginning of the year ratio of 8.0%. The
Corporation and each of its banking subsidiaries continue to exceed regulatory
capital requirements as shown below (dollars in thousands):
<TABLE>
<CAPTION>
Ann Arbor Capitol Grand Oakland Paragon Portage Capitol
Commerce National Haven Commerce Bank & Commerce Bancorp
Bank Bank Bank (1) Bank Trust Bank Ltd. Consolidated
--------- -------- --------- --------- ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial Position:
Total Assets $77,922 $96,348 $23,232 $65,030 $54,964 $65,904 $38,580 $391,735
Total Assets for Risk-Based
Capital Purposes 78,762 97,503 23,192 65,634 55,322 66,635 34,822 391,814
Risk-Weighted Assets 57,545 70,842 16,346 49,800 42,555 48,456 34,655 290,310
Tier I Capital 5,182 7,436 2,440 5,312 4,911 4,888 29,111 29,111
Allowable Tier II Capital 719 885 184 586 511 606 (577) 2,914
Tier I and Allowable Tier II
Capital, Combined 5,901 8,321 2,624 5,898 5,422 5,494 28,534 32,025
Ratios Based on Financial
Position:
Ratio of Tier I Capital to
Risk-Weighted Assets 9.01% 10.50% 14.93% 10.67% 11.54% 10.09% 84.00% 10.03%
Ratio of Combined Tier I and
Tier II Capital to Risk-
Weighted Assets 10.25% 11.75% 16.05% 11.84% 12.74% 11.34% 82.34% 11.03%
Leverage Ratio 6.65% 7.72% 10.50% 8.17% 8.93% 7.42% 75.46% 7.43%
Ratios Required:
Tier I 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Tier I and Tier II Combined 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%
Leverage Ratio 4.00% 4.00% 8.00% 4.00% 4.00% 4.00% 3.00% 4.00%
</TABLE>
(1) Grand Haven Bank, as a condition of its commercial bank charter, is
required to maintain a Tier I leverage capital to total assets ratio of
not less than 8% for the first three full years of operations.
Impact of New Accounting Standards
Financial Accounting Standards Board Statement No. 122, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", establishes new guidance for accounting and measurement of potential
impairment of certain long-lived assets including intangibles and goodwill,
among other things. This new standard became effective for the Corporation
January 1, 1996 and requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing the
review for recoverability, the Statement requires the use of estimates of
future cash flows and other estimates of fair value.
Implementation of this new accounting standard had no impact on the
Corporation's financial position or results of operations for the period ended
March 31, 1996.
Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation", revises the accounting recognition
of compensation expense for compensatory stock options and related disclosures.
This new standard permits alternative expense recognition using certain option
valuation models. For companies electing to continue past expense recognition
practices (which the Corporation expects to implement), certain expanded
14 of 17
<PAGE> 15
proforma disclosures of expense amounts and earnings are required using those
valuation models (as if the alternative expense methods had been implemented).
Management has not completed its analysis of this new accounting standard,
which is expected to result in expanded disclosures to be made for the
Corporation effective December 31, 1996.
At any time, there are a number of proposed new accounting standards
under consideration by standard-setting bodies, bank regulatory agencies and
other entities. Because of the fluid status of such proposals, the potential
impact thereof on the Corporation's financial statements is unclear.
15 of 17
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Corporation and its subsidiaries are parties to
certain ordinary, routine litigation incidental to their
business. In the opinion of management, liabilities arising
from such litigation would not have a material effect on the
Corporation's consolidated financial position or results of
operations.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
(11) Statement regarding computation of per share
earnings.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
quarter ended March 31, 1996.
16 of 17
<PAGE> 17
SIGNATURES
Pursuant to the requirements 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.
CAPITOL BANCORP LTD.
(Registrant)
\s\ Joseph D. Reid
------------------------------------
Chairman, President and CEO
(duly authorized to sign on behalf of
of the registrant)
\s\ Lee W. Hendrickson
------------------------------------
Vice President and
Chief Financial Officer
Date: May 6, 1996
17 of 17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
11 Computation of Per Share earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
PART II, ITEM 6(a)
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
CAPITOL BANCORP LTD.
<TABLE>
<CAPTION>
Quarter Ended March 31
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Primary Net Income Per Share:
Weighted average number of common shares outstanding 3,476,878 3,310,193
Net effect of dilutive stock options and warrants--
based on the treasury stock method or modified
treasury stock method, as applicable 506,239 52,980
---------- ---------
Total 3,983,117 3,363,173
========== =========
Net income for the period $1,101,034 $537,396
Adjustment for modified treasury stock method (A) 36,872
---------- ---------
Adjusted net income for primary net income per share $1,137,906 $537,396
========== =========
Net income per share $.28 $.16
========== =========
Fully Diluted Net Income Per Share (B): $.28 $.16
========== =========
</TABLE>
(A) Anti-dilutive in interim 1995 period.
(B) Same as for primary net income per share since dilution is less than 3% or
is otherwise not applicable for the period.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,836
<INT-BEARING-DEPOSITS> 54
<FED-FUNDS-SOLD> 17,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,960
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 310,892
<ALLOWANCE> 3,921
<TOTAL-ASSETS> 391,734
<DEPOSITS> 341,297
<SHORT-TERM> 9,162
<LIABILITIES-OTHER> 4,161
<LONG-TERM> 4,850
0
0
<COMMON> 23,089
<OTHER-SE> 9,287
<TOTAL-LIABILITIES-AND-EQUITY> 391,734
<INTEREST-LOAN> 7,346
<INTEREST-INVEST> 1,139
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 8,488
<INTEREST-DEPOSIT> 4,011
<INTEREST-EXPENSE> 4,194
<INTEREST-INCOME-NET> 4,294
<LOAN-LOSSES> 217
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,739
<INCOME-PRETAX> 1,622
<INCOME-PRE-EXTRAORDINARY> 1,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,101
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 0
<LOANS-NON> 1,177
<LOANS-PAST> 372
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,687
<CHARGE-OFFS> 21
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 3,921
<ALLOWANCE-DOMESTIC> 3,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,931
</TABLE>
