<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1997
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 registrant 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)
48933
(Zip Code)
(517) 487-6555
(Registrant's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes. X No_______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, No par value: 4,563,062 shares outstanding as of April 30,
1997.
Page 1 of 18
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated balance sheets - March 31, 1997 and December 31, 1996.
Consolidated statements of income - Three months ended March 31, 1997
and 1996.
Consolidated statements of cash flows - Three months ended March 31,
1997 and 1996.
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 18
<PAGE> 3
PART I, ITEM I
CAPITOL BANCORP LTD.
Consolidated Balance Sheets
As of March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- -----------
(in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $21,643 $20,928
Interest-bearing deposits with banks 55 55
Federal funds sold 54,800 42,350
------ ------
Cash and cash equivalents 76,498 63,333
Loans held for resale 5,517 6,749
Investment securities:
Available for sale, carried at market value 50,807 46,622
Held for long-term investment, carried at
amortized cost which approximates market value 2,103 2,103
------ ------
Total investment securities 52,910 48,725
Portfolio loans:
Commercial 309,432 283,461
Real estate mortgage 56,803 53,712
Installment 24,108 20,450
------- -------
Total portfolio loans 390,343 357,623
Less allowance for loan losses (4,956) (4,578)
------- -------
Net portfolio loans 385,387 353,045
Investment in and advances to Amera Mortgage Corporation 2,983 2,831
Premises and equipment 5,086 5,421
Accrued interest income 3,322 3,107
Excess of cost over net assets of acquired subsidiaries 2,299 2,347
Other assets 6,877 6,705
-------- --------
TOTAL ASSETS $540,879 $492,263
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $57,131 $62,766
Interest-bearing 423,607 373,400
--------- --------
Total deposits 480,738 436,166
Debt obligations 8,550 6,500
Accrued interest on deposits and other liabilities 4,808 4,708
--------- --------
Total liabilities 494,096 447,374
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 5,665 4,730
STOCKHOLDERS' EQUITY
Common stock, no par value:
10,000,000 shares authorized;
issued and outstanding: 1997 - 4,550,688 shares
1996 - 4,504,911 shares 35,346 34,972
Retained earnings 5,961 5,150
Market value adjustment (net of tax effect) for
investment securities available for sale (189) 37
------- --------
Total stockholders' equity 41,118 40,159
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $540,879 $492,263
======== ========
</TABLE>
Page 3 of 18
<PAGE> 4
CAPITOL BANCORP LTD.
Consolidated Statements of Income
For the Three Months Ended March 31, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Interest income:
Portfolio loans (including fees) $ 9,066 $ 7,221
Loans held for resale 78 125
Taxable investment securities 768 518
Federal funds sold 599 321
Other interest 16
Dividends on investment securities 23 287
------ -------
Total interest income 10,534 8,488
Interest expense:
Demand deposits 834 547
Savings deposits 370 318
Time deposits 3,922 3,146
Debt obligations 40 183
------- -------
Total interest expense 5,166 4,194
------- -------
Net interest income 5,368 4,294
Provision for loan losses 454 217
------- -------
Net interest income after
provision for loan losses 4,914 4,077
Noninterest income:
Service charges on deposit accounts 169 179
Trust fee income 77 64
Realized gain on sale of investment
securities available for sale 10
Other realized gains 495
Other 83 41
------- -------
Total noninterest income 834 284
Noninterest expense:
Salaries and employee benefits 1,978 1,414
Occupancy 295 210
Equipment rent, depreciation and maintenance 424 115
Deposit insurance premiums 21 32
Other 1,140 968
------- ------
Total noninterest expense 3,858 2,739
------- -------
Income before federal income taxes 1,890 1,622
Federal income taxes 628 521
------- -------
NET INCOME $ 1,262 $ 1,101
======= =======
NET INCOME PER SHARE:
Primary $0.27 $0.26
======= =======
Fully diluted $0.27 $0.26
======= =======
</TABLE>
Page 4 of 18
<PAGE> 5
CAPITOL BANCORP LTD.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ----------
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $1,262 $1,101
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 454 217
Depreciation of premises and equipment 261 137
Amortization of excess of cost over net
assets of acquired subsidiaries 48 48
Net amortization of investment security
premiums (accretion of discount) (117) 25
Gain on sale of premises and equipment 494 6
Originations and purchases of loans held for resale (23,854) (41,083)
Proceeds from sales of loans held for resale 25,086 35,881
Increase in accrued interest income
and other assets (420) (251)
Increase (decrease) in accrued interest
and other liabilities 100 (45)
------- -------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,314 (3,964)
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available for sale 1,482 1,665
Proceeds from maturities of investment securities 10,208 7,011
Purchases of investment securities (16,105) (8,811)
Net increase in portfolio loans (32,794) (15,172)
Proceeds from sales of premises and equipment 195 4
Purchases of premises and equipment (615) (211)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (37,629) (15,514)
FINANCING ACTIVITIES
Net payments on debt obligations 2,050 5,300
Resources provided by minority interest 935
Net proceeds from issuance of common stock 375 939
Cash dividends paid (451) (312)
Increase in demand deposits, NOW
accounts and savings accounts 15,887 1,442
Increase (decrease) in certificates of deposit 28,684 (432)
------ --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 47,480 6,937
------ --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,165 (12,541)
Cash and cash equivalents at beginning of period 63,333 45,331
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $76,498 $32,790
======= =======
</TABLE>
Page 5 of 18
<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-Q. 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, 1997 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
The consolidated balance sheet as of December 31, 1996 was derived from
audited consolidated financial statements as of that date. Certain 1996
amounts have been reclassified to conform to the 1997 presentation.
Note B - Implementation of New Accounting Standards
Financial Accounting Standards Board ("FASB") Statement, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", establishes new guidelines for accounting for certain
transactions, such as sales of loans and loan participations. This new
standard became effective for the Corporation January 1, 1997. 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, 1997.
Note C - New Bank
Brighton Commerce Bank, a de novo bank located in Brighton, Michigan, was
formed in early January 1997. The Corporation's investment in this new bank
($1.6 million) was funded primarily from proceeds from exercise of stock
options and borrowings.
The Corporation owns 59% of the common stock of Brighton Commerce Bank. This
new bank is consolidated for financial reporting purposes with corresponding
accounting recognition given to applicable minority interest.
Page 6 of 18
<PAGE> 7
Note D - Prospective Impact of New Accounting Standards Not Yet Adopted
FASB Statement No. 128, "Earnings per Share", will revise the computation and
reporting of earnings per share. This new standard is intended to simplify the
basis upon which per-share amounts are determined, replacing "primary" earnings
per share with "basic" earnings per share. "Fully diluted" earnings per share
will be replaced by "diluted" earnings per share. The Statement will become
effective for the Corporation's year end 1997 consolidated financial statements
and will result in restatement of per-share amounts for prior periods. Early
adoption of the new standard is not permitted. Management has not completed
its analysis of this new accounting standard.
FASB Statement No. 129, "Disclosure of Information about Capital Structure",
clarifies the extent and nature of disclosures relating to an entity's capital
structure. This new standard will become effective for the Corporation's year
end 1997 consolidated financial statements and, upon implementation, is not
expected to have a material impact.
A variety of proposed or otherwise potential accounting standards are
currently under study by standard-setting organizations and various regulatory
agencies. Because of the tentative and preliminary nature of these proposed
standards, management has not determined whether implementation of such
proposed standards would be material to the Corporation's financial statements.
Page 7 of 18
<PAGE> 8
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
Total assets amounted to $540.9 million at March 31, 1997, an increase of
$48.6 million from the December 31, 1996 level of $492.3 million. The
consolidated balance sheets include the Corporation and its majority-owned
banking subsidiaries.
During the three months ended March 31, 1997, one de novo bank was added.
Brighton Commerce Bank, in Brighton, Michigan, was formed in early January 1997
and was capitalized with $2.7 million of which $1.6 million was invested by the
Corporation. The Corporation's investment in this new bank was funded
primarily from proceeds from exercise of stock options and borrowings. The
Corporation owns 59% of the common stock of Brighton Commerce Bank and,
accordingly, this new bank is consolidated for financial reporting purposes
with corresponding accounting recognition given to applicable minority
interest.
Portfolio loans increased during the three-month period by approximately $33
million. Loan growth was funded primarily by higher levels of time deposits.
The majority of portfolio loan growth occurred in commercial loans, which
increased approximately $26 million, consistent with the banks' emphasis on
commercial lending activities.
The allowance for loan losses at March 31, 1997 approximated $5 million or
1.27% of total portfolio loans, closely approximating the year-end 1996 ratio
of 1.28%. Provisions for loan losses have been maintained at a higher level in
1997 ($454,000) relative to 1996 ($217,000) commensurate with portfolio growth,
levels of delinquent and other nonperforming loans and other factors.
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.
The table on the next page summarizes portfolio loan balances and activity in
the allowance for loan losses for the interim periods (in thousands):
Page 8 of 18
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----------- ----------
Allowance for loan losses at January 1 $ 4,578 $ 3,687
Loans charged-off:
Commercial 226 11
Installment 1 10
----------- ----------
Total charge-offs 227 21
Recoveries:
Commercial 143 38
Installment 8
----------- ----------
Total recoveries 151 38
----------- ----------
Net charge-offs (recoveries) 76 (17)
Additions to allowance charged to expense 454 217
----------- ----------
Allowance for loan losses at March 31 $ 4,956 $ 3,921
=========== ==========
Average total portfolio loans for period ended March 31 $ 371,211 $ 289,176
=========== ==========
Ratio of net charge-offs to average portfolio loans 0.02% ---
=========== ==========
</TABLE>
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, 1997 December 31, 1996
------------------------------- ---------------------------
<S> <C> <C>
% %
Total Total
Portfolio Portfolio
Loans Loans
---------- ---------
Commercial $ 2,371 .60% $ 2,281 .64%
Real estate mortgage 69 .02 67 .02
Installment 101 .03 100 .03
Unallocated 2,415 .62 2,130 .59
---------- ----------- ---------- -------
Total allowance for loan losses $ 4,956 1.27% $ 4,578 1.28%
========== =========== ========== ====
Total portfolio
loans outstanding $ 390,343 $ 357,623
========= ==========
</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, 1997, total loans under this program
approximated $13.6 million. Reserves related to these loans, which are
represented by earmarked funds on deposit at certain of the bank subsidiaries,
approximated $1.5 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 1996 and through
March 31, 1997. Nonperforming loans (i.e.,
Page 9 of 18
<PAGE> 10
loans which are 90 days or more past due and loans on nonaccrual status) at
March 31, 1997 amounted to $1.99 million compared with $2.7 million at December
31, 1996 as summarized in the following table (in thousands):
<TABLE>
<CAPTION>
March 31 Dec 31
1997 1996
--------- ---------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 1,116 $ 928
Real estate 157 107
Installment 18 22
---------- ----------
Total nonaccrual loans 1,291 1,057
Past due (>90 days) loans:
Commercial 547 1,009
Real estate 66 549
Installment 87 84
---------- -----------
Total past due loans 700 1,642
---------- -----------
Total nonperforming loans $ 1,991 $ 2,699
========= =========
</TABLE>
Nonperforming loans decreased approximately $708,000 during the three
months ended March 31, 1997. Most of the increase in nonaccrual loans relates
to a small number of loans in various stages of resolution which management
believes to be adequately collateralized or otherwise appropriately recorded in
its determination of the adequacy of the allowance for loan losses.
If nonperforming loans (including loans in nonaccrual status) had
performed in accordance with their contractual terms during the period,
additional interest income of $35,500 and $21,500 would have been recorded for
the three months ended March 31, 1997 and 1996, respectively. Interest income
recognized on loans in nonaccrual status for the period approximated $4,400 and
$10,600, 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 $185,000 at March 31, 1997, a decrease of $128,000
from the year-end 1996 level of $313,000 due to the sale of one property.
Page 10 of 18
<PAGE> 11
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>
Total Allowances for
Portfolio Loans Loan Losses
---------------------------- --------------------------------
March 31 Dec 31 March 31 Dec 31
1997 1996 1997 1996
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Ann Arbor Commerce Bank $ 90,286 $ 79,463 $ 1,230 $ 1,088
Bank of Tucson 8,799 4,850 88 49
Brighton Commerce Bank 1,340 n/a 14 n/a
Capitol National Bank 83,369 80,749 1,123 1,076
Grand Haven Bank 28,365 26,162 335 303
Macomb Community Bank 9,025 5,821 90 59
Oakland Commerce Bank 56,655 54,569 669 655
Paragon Bank & Trust 49,317 46,680 579 563
Portage Commerce Bank 61,255 58,177 828 785
Other, net 1,932 1,152 --- ---
--------- --------- -------- ---------
Consolidated $ 390,343 $ 357,623 $ 4,956 $ 4,578
========= ========= ======== =======
Allowance as a
Percentage of
Nonperforming Total
Loans Portfolio Loans
------------------------- ----------------
March 31 Dec 31 March 31 Dec 31
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Ann Arbor Commerce Bank $ 389 $ 304 1.36% 1.37%
Bank of Tucson --- --- 1.00 1.01
Brighton Commerce Bank --- n/a 1.04 n/a
Capitol National Bank 535 797 1.35 1.33
Grand Haven Bank --- --- 1.18 1.16
Macomb Community Bank --- --- 1.00 1.01
Oakland Commerce Bank 648 1,227 1.18 1.20
Paragon Bank & Trust 14 44 1.17 1.21
Portage Commerce Bank 405 327 1.35 1.35
Other, net --- --- --- ---
------- ------- ------- ------
Consolidated $ 1,991 $ 2,699 1.27% 1.28%
======= ======= ======= ======
</TABLE>
n/a - Not applicable
Noninterest-bearing deposits approximated 11.9% of total deposits at
March 31, 1997, a decrease from the December 31, 1996 level of 14.4%. Levels
of noninterest-bearing deposits fluctuate based on customers' transaction
activity.
Page 11 of 18
<PAGE> 12
Results of Operations
Net income for the three months ended March 31, 1997 amounted to
$1,262,000 ($.27 per share), an increase over the $1,101,000 ($.26 per share)
earned during the corresponding period of 1996. 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
1997 1996 1997 1996 1997 1996 1997 1996
--------- --------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ann Arbor Commerce Bank $ 112,999 $ 105,651 $ 591 $ 277 35.80% 22.55% 2.27% 1.46%
Bank of Tucson (1) 24,657 17,276 (57) n/a n/a n/a n/a n/a
Brighton Commerce Bank (2) 4,165 n/a (123) n/a n/a n/a n/a n/a
Capitol National Bank 111,674 104,254 390 374 19.47 20.68 1.45 1.54
Grand Haven Bank 38,499 32,731 59 56 8.47 8.49 .68 1.03
Macomb Community Bank (1) 18,925 15,123 (41) n/a n/a n/a n/a n/a
Oakland Commerce Bank 73,682 71,095 161 211 11.88 16.24 .90 1.38
Paragon Bank & Trust 64,912 63,752 149 130 13.28 10.29 .94 .95
Portage Commerce Bank 83,083 73,769 241 265 18.36 22.37 1.24 1.66
--------- --------- ------- ----- ----- ------ ---- ----
Total Banks 532,596 483,651 1,370 1,313 16.79 17.63 1.10 1.40
Mortgage Banking 2,983 2,831 (73) (37) n/a n/a n/a n/a
Other, net 5,300 5,781 (35) (175) n/a n/a n/a n/a
------ ------ ------- ----- ----- ----- ---- ----
Consolidated $540,879 $492,263 $ 1,262 $ 1,101 12.57% 14.27% 1.00% 1.15%
======== ======== ======= ======= ===== ===== ==== ====
</TABLE>
n/a - Not applicable.
(1) - Bank of Tucson and Macomb Community Bank, de novo banks, commenced
operations in June and September 1996, respectively, and are 51%
owned by the Corporation.
(2) - Brighton Commerce Bank, a de novo bank, commenced operations in
January 1997 and is 59% owned by the Corporation.
Net interest income increased 14.6% during the three-month 1997 period
versus the corresponding period of 1996.
Noninterest income increased in 1997 to $834,000 for the three-month
period, as compared with $284,000 for the corresponding 1996 period. This
significant increase related primarily to a nonrecurring gain from the sale of
a bank building and land parcel. Service charge income decreased 6% and trust
fee income increased 20%.
The provision for loan losses amounted to $454,000 for the three-month
1997 period as compared to $217,000 for the corresponding period of 1996. The
increased interim provision for loan losses in 1997 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, 1997
approximated $3.9 million compared with $2.7 million in 1996. The increase in
noninterest expense is associated with normal growth and increases in general
operating costs.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $76.5 million or 14.1% of total
assets at March 31, 1997 as compared with $63.3 million or 12.9% of total
assets at December 31, 1996. As liquidity levels vary continuously based on
customer activities, amounts of cash and cash
Page 12 of 18
<PAGE> 13
equivalents can vary widely at any given point in time. Management believes
the Corporation's liquidity position at March 31, 1997 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, 1997 and December 31, 1996, the Corporation
had approximately $53 million and $49 million, respectively, of investment
securities classified as available for sale which can be utilized to meet
various liquidity needs as they arise.
At March 31, 1997, the Corporation had lines of credit from an
unrelated financial institution aggregating $10 million. Under this credit
facility, borrowings outstanding approximated $5.6 million at March 31, 1997
($3.5 million at December 31, 1996). Future funding for formation of new banks
(to the extent not otherwise funded by internal capital resources) or other
needs may be met by additional future borrowings. Under the terms of the
credit agreement, $8 million is convertible into long-term notes; $2 million of
the lines of credit are revolving and are reviewed annually for continuance.
Two of the Corporation's banks, (Oakland Commerce Bank and Ann Arbor
Commerce Bank) have secured lines of credit with the Federal Home Loan Bank.
Borrowings thereunder approximated $3 million and additional borrowing capacity
approximated $20.8 million at March 31, 1997.
In 1994, approximately 817,000 warrants were issued in a merger
transaction. Each warrant enables the holder to purchase one share of the
Corporation's common stock at an exercise price of $8.17 per warrant. During
the three months ended March 31, 1997, 46,000 warrants were exercised,
resulting in proceeds to the Corporation of $375,000. These transactions
resulted in issuance of 46,000 shares of common stock during the three months
ended March 31, 1997. At March 31, 1997, 116,000 warrants remained outstanding
and expire on June 30, 1997. If all remaining warrants were exercised, the
Corporation would receive additional cash and capital approximating $952,000
and issue 116,000 shares of previously unissued common stock, although there is
no assurance that such warrants will be exercised.
The Corporation's Board of Directors recently approved a second cash
dividend of $.10 per share (payable June 1, 1997 to shareholders of record as
of May 1, 1997). The dividend amounts in 1997 represent an increase over the
dividends of $.0825 per share paid quarterly in 1996.
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 investment securities at their respective balance sheet dates decreased
stockholders' equity by $226,000 for the three months ended March 31, 1997.
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
Page 13 of 18
<PAGE> 14
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.
Capital, as a percentage of total assets, approximated 7.6% at March
31, 1997, a decrease from the beginning of the year ratio of 8.2%. The
Corporation and each of its banking subsidiaries continue to exceed regulatory
capital requirements as shown on the following page (dollars in thousands):
Page 14 of 18
<PAGE> 15
<TABLE>
<CAPTION>
Ann Arbor Bank Brighton Capitol Grand
Commerce of Commerce National Haven
Bank Tucson(1) Bank(1) Bank Bank (1)
----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Financial Position:
Total Assets $112,999 $ 24,657 $4,165 $111,674 $38,499
Total Assets for Risk-Based
Capital Purposes 114,271 24,761 4,180 112,857 38,846
Risk-Weighted Assets 84,674 11,930 1,969 81,503 26,269
Tier I Capital 7,423 5,107 2,377 8,225 3,091
Allowable Tier II Capital 1,061 88 14 1,020 335
Tier I and Allowable Tier II
Capital, Combined 8,484 5,195 2,391 9,245 3,426
Ratios Based on Financial
Position:
Ratio of Tier I Capital to
Risk-Weighted Assets 8.77% 42.81% 120.71% 10.09% 11.77%
Ratio of Combined Tier I
and Tier II Capital to
Risk-Weighted Assets 10.02% 43.55% 121.42% 11.34% 13.04%
Leverage Ratio 6.53% 20.79% 57.05% 7.31% 8.00%
Ratios Required:
Tier I 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%
Leverage Ratio 4.00% 8.00% 8.00% 4.00% 8.00%
Macomb Oakland Paragon Portage Capitol
Community Commerce Bank & Commerce Bancorp
Bank(1) Bank Trust Bank Ltd. Consolidated
--------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
Total Assets $18,925 $73,682 $64,912 $83,083 $48,313 $540,879
Total Assets for Risk-Based
Capital Purposes 19,019 74,369 65,482 83,956 47,516 545,038
Risk-Weighted Assets 10,624 55,621 54,308 59,246 47,514 393,761
Tier I Capital 3,547 5,499 4,850 5,356 39,008 44,638
Allowable Tier II Capital 90 669 579 742 (986) 3,932
Tier I and Allowable Tier II
Capital, Combined 3,637 6,168 5,429 6,098 38,022 48,570
Ratios Based on Financial
Position:
Ratio of Tier I Capital to
Risk-Weighted Assets 33.39% 9.89% 8.93% 9.04% 82.10% 11.34%
Ratio of Combined Tier I
and Tier II Capital to
Risk-Weighted Assets 34.23% 11.09% 10.00% 10.29% 80.02% 12.33%
Leverage Ratio 18.72% 7.44% 7.49% 6.39% 85.11% 7.60%
Ratios Required:
Tier I 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%
Leverage Ratio 8.00% 4.00% 4.00% 4.00% 3.00% 4.00%
</TABLE>
(1) As a condition of bank charter approval, Bank of Tucson, Brighton
Commerce Bank, Grand Haven Bank and Macomb Community Bank are required
to maintain Tier I leverage capital-to-total-assets ratios of not less
than 8% for the first three full years of operations.
Page 15 of 18
<PAGE> 16
The Corporation's operating strategy continues to be focused on the
ongoing growth and maturity of its existing banks, coupled with de novo bank
expansion in selected markets as opportunities arise. Management continues to
be actively engaged in the ongoing process of exploring opportunities for
future growth which includes de novo bank formation and other growth
strategies. Accordingly, the Corporation may invest in or otherwise add
additional banks in future periods, subject to economic conditions and other
factors, although the timing of such additional banking units, if any, is
uncertain. Such future de novo banks and/or additions of other operating units
could be either wholly-owned or majority-owned by the Corporation.
Management believes the Corporation's capital resources at March 31,
1997 to be adequate to fund existing operations, future growth and expansion.
Impact of New Accounting Standards
FASB Statement No. 128, "Earnings per Share", will revise the
computation and reporting of earnings per share. This new standard is intended
to simplify the basis upon which per-share amounts are determined, replacing
"primary" earnings per share with "basic" earnings per share. "Fully diluted"
earnings per share will be replaced by "diluted" earnings per share. The
Statement will become effective for the Corporation's year end 1997
consolidated financial statements and will result in restatement of per-share
amounts for prior periods. Early adoption of the new standard is not
permitted. Management has not completed its analysis of this new accounting
standard.
FASB Statement No. 129, "Disclosure of Information about Capital
Structure", clarifies the extent and nature of disclosures relating to an
entity's capital structure. This new standard will become effective for the
Corporation's year end 1997 consolidated financial statements and, upon
implementation, is not expected to have a material impact.
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.
Page 16 of 18
<PAGE> 17
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.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
quarter ended March 31, 1997.
Page 17 of 18
<PAGE> 18
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 the registrant)
\s\ Lee W. Hendrickson
----------------------
Vice President and
Chief Financial Officer
Date: May 14, 1997
Page 18 of 18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Statement regarding computation of per share
earnings.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
CAPITOL BANCORP LTD.
<TABLE>
<CAPTION>
Quarter Ended March 31
---------------------------------
1997 1996 (A)
---- --------
<S> <C> <C>
Primary Net Income Per Share:
Weighted average number of common shares outstanding 4,523,191 3,824,566
Net effect of dilutive stock options and warrants --
based on the treasury stock method or modified
treasury stock method, as applicable 231,219 516,941
----------- ---------
Total 4,754,410 4,341,507
=========== =========
Net income for the period $ 1,262,280 $1,101,034
Adjustment for modified treasury stock method 36,872
----------- ----------
Adjusted earnings for purposes of computation
of per share earnings $ 1,262,280 $1,137,906
=========== ==========
Primary net income per share: $ 0.27 $ 0.26
=========== ==========
Fully Diluted Net Income Per Share:(B) $ 0.27 $ 0.26
=========== ==========
</TABLE>
(A) As adjusted to reflect the Corporation's 1996 10% stock dividend as if
it had occurred at the beginning of the 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,643
<INT-BEARING-DEPOSITS> 55
<FED-FUNDS-SOLD> 54,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,910
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 395,860
<ALLOWANCE> 4,956
<TOTAL-ASSETS> 540,879
<DEPOSITS> 480,738
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 4,808
<LONG-TERM> 5,550
0
0
<COMMON> 35,346
<OTHER-SE> 5,772
<TOTAL-LIABILITIES-AND-EQUITY> 540,879
<INTEREST-LOAN> 9,144
<INTEREST-INVEST> 1,390
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,534
<INTEREST-DEPOSIT> 5,126
<INTEREST-EXPENSE> 5,166
<INTEREST-INCOME-NET> 5,368
<LOAN-LOSSES> 454
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 3,858
<INCOME-PRETAX> 1,890
<INCOME-PRE-EXTRAORDINARY> 1,262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,262
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<YIELD-ACTUAL> 0
<LOANS-NON> 1,291
<LOANS-PAST> 700
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,578
<CHARGE-OFFS> 227
<RECOVERIES> 151
<ALLOWANCE-CLOSE> 4,956
<ALLOWANCE-DOMESTIC> 4,956
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,415
</TABLE>
