-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OVqFiKEGEV0nPcC2vwEbwTGZDjL1d4NGADaBzTSnAbHMHLCIwyN7Mgzf55hfiRzn dOAt/awYLq00kboMy01ZJw== /in/edgar/work/0000950124-00-006830/0000950124-00-006830.txt : 20001114 0000950124-00-006830.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950124-00-006830 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL DIRECTIONS INC CENTRAL INDEX KEY: 0000830157 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 382781737 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-20417 FILM NUMBER: 762095 BUSINESS ADDRESS: STREET 1: 322 S JEFFERSON ST CITY: MASON STATE: MI ZIP: 48854 BUSINESS PHONE: 5176760500 MAIL ADDRESS: STREET 2: P O BOX 130 CITY: MASON STATE: MI ZIP: 48854-0130 10-Q 1 k58499e10-q.txt FORM 10-Q 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 the quarter ended September 30, 2000 Commission file number 33-20417 -------------------- ---------------- Capital Directions, Inc. -------------------------------------------------------- (Exact name of registrant as specified in its charter) Michigan 38-2781737 - ----------------------------- ----------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 322 South Jefferson St., Mason, Michigan 48854-0130 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (517) 676-0500 -------------- None -------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by checkmark 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 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 ------------- ------------ As of October 27, 2000 the registrant had outstanding 598,056 shares of common stock having a par value of $5 per share. 2 CAPITAL DIRECTIONS, INC. INDEX TO FORM 10-Q ------------------
Page PART I - FINANCIAL INFORMATION Number - ------------------------------ ------ Item 1. Financial Statements Consolidated Balance Sheets September 30, 2000 and December 31, 1999................................... 1 Consolidated Statements of Income for the Three and Nine Month Periods ended September 30, 2000 and 1999.................................. 2 Consolidated Statements of Cash Flows for the Nine Month Periods ended September 30, 2000 and 1999.................................. 3 Consolidated Statements of Comprehensive Income for the Three and Nine Month Periods ended September 30, 2000 and 1999..... 4 Notes to Interim Consolidated Financial Statements......................... 5-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 9-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 14 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings......................................................... 14 Item 2. Changes in Securities and Use of Proceeds................................. 14 Item 3. Defaults Upon Senior Securities .......................................... 15 Item 4. Submission of Matters to a Vote of Security Holders....................... 15 Item 5. Other Information......................................................... 15 Item 6. Exhibits and Reports on Form 8-K.......................................... 15 Signatures................................................................. 16 Index to Exhibits.......................................................... 17
3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CAPITAL DIRECTIONS, INC. CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (In thousands, except share and per share data)
September 30, December 31, 2000 1999 ---- ---- (Unaudited) ASSETS Cash and non interest bearing deposits $ 4,732 $ 3,097 Interest bearing deposits 31 54 Federal funds sold 3,350 - --------- -------- Total cash and cash equivalents 8,113 3,151 Securities available for sale 11,141 9,751 Federal Home Loan Bank (FHLB) stock 1,174 975 --------- -------- Total investment securities 12,315 10,726 Loans: Commercial and agricultural 5,638 5,268 Installment 4,018 4,574 Real estate mortgages 77,832 79,270 ---------- -------- Total loans 87,488 89,112 Allowance for loan losses (1,068) (1,055) --------- --------- Net loans 86,420 88,057 Premises and equipment, net 782 768 Accrued income and other assets 3,075 3,011 --------- --------- Total assets $ 110,705 $ 105,713 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Non interest bearing $ 10,384 $ 8,884 Interest bearing 62,896 63,146 --------- --------- Total deposits 73,280 72,030 Federal funds purchased - 1,700 Long-term FHLB borrowings 23,471 18,861 Other liabilities 1,412 1,294 --------- --------- Total liabilities 98,163 93,885 SHAREHOLDERS' EQUITY Common stock: $5 par value, 1,300,000 shares authorized; 598,056 outstanding at September 30, 2000 and 596,622 outstanding at December 31, 1999 2,990 2,983 Additional paid in capital 2,590 2,576 Retained earnings 6,917 6,236 Accumulated other comprehensive income, net of tax of $23 as of September 30, 2000 and $17 as of December 31, 1999 45 33 --------- --------- Total shareholders' equity 12,542 11,828 --------- --------- Total liabilities and shareholders' equity $ 110,705 $ 105,713 ========= =========
See accompanying notes to consolidated financial statements. 1 4 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - ------------------------------------------------------------------------- (In thousands, except share and per share data)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Interest and Dividend Income Interest and fees on loans $ 1,779 $ 1,714 $ 5,306 $ 5,052 Federal funds sold 28 18 55 30 Interest and dividends on investment securities: Taxable 154 123 415 372 Tax exempt 41 45 127 154 Other interest income - - 1 3 -------- -------- --------- -------- Total interest income 2,002 1,900 5,904 5,611 Interest Expense Deposits 644 589 1,847 1,763 Short-term borrowings - 2 13 17 Long-term borrowings 322 280 908 790 -------- -------- --------- -------- Total interest expense 966 871 2,768 2,570 -------- --------- --------- -------- Net Interest Income 1,036 1,029 3,136 3,041 Provision for loan losses - 15 6 33 -------- -------- --------- -------- Net interest income after provision for loan losses 1,036 1,014 3,130 3,008 Non Interest Income Service charges on deposit accounts 85 74 244 206 Other income 112 59 340 216 -------- -------- --------- -------- Total non interest income 197 133 584 422 Non Interest Expense Salaries and employee benefits 351 327 1,106 1,020 Premises and equipment 79 75 229 231 Other operating expense 182 183 602 606 -------- -------- --------- -------- Total non interest expense 612 585 1,937 1,857 Income before income tax expense 621 562 1,777 1,573 Income tax expense 193 172 540 474 -------- -------- --------- -------- Net Income $ 428 $ 390 $ 1,237 $ 1,099 ======== ======== ========= ======== Average common shares outstanding 598,056 596,622 597,742 596,058 Basic earnings per common share $ 0.72 $ 0.65 $ 2.07 $ 1.84 Diluted earnings per common share $ 0.71 $ 0.65 $ 2.05 $ 1.83 Dividends per share of common stock, declared $ 0.32 $ 0.29 $ 0.93 $ 0.84
See accompanying notes to consolidated financial statements. 2 5 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
..................................................................................................... (In thousands) Nine Months Ended September 30, 2000 1999 ---- ---- Cash flows from operating activities Net income $ 1,237 $ 1,099 Adjustments to reconcile net income to net cash from operating activities Depreciation 85 90 Provision for loan losses 6 33 Net amortization (accretion) on securities 1 9 Changes in assets and liabilities: Accrued interest receivable (133) (115) Accrued interest payable 37 11 Other assets 63 (346) Other liabilities 64 291 --------- --------- Net cash from operating activities 1,360 1,072 Cash flows from investing activities Securities available for sale: Purchases (3,083) (2,439) Maturities, calls and principal payments 1,710 3,155 Securities held to maturity: Maturities, calls and principal payments - 265 Purchase of FHLB stock (199) (188) Net change in loans 1,631 (5,350) Premises and equipment expenditures (99) (83) --------- --------- Net cash from investing activities (40) (4,640) Cash flows from financing activities Net change in deposits 1,250 561 Federal funds purchased (1,700) - Proceeds from long-term FHLB borrowings 5,700 4,000 Repayment of long-term FHLB borrowings (1,090) (588) Proceeds from shares issued upon exercise of stock options 21 22 Dividends paid (539) (489) --------- --------- Net cash from financing activities 3,642 3,506 --------- --------- Net change in cash and cash equivalents 4,962 (62) Cash and cash equivalents at beginning of year 3,151 3,321 --------- --------- Cash and cash equivalents at September 30 $ 8,113 $ 3,259 ========= ========= Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 2,731 $ 2,559 Income taxes - federal $ 542 $ 474 Transfer from securities held to maturity to securities available for sale $ - $ 6,011
See accompanying notes to consolidated financial statements. 3 6 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
- -------------------------------------------------------------------------------------------------------------------- (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $ 428 $ 390 $1,237 $1,099 Other comprehensive income (loss), net of tax Unrealized holding gains (losses) on securities available for sale arising during period 46 (59) 18 (177) Unrealized gain on securities transferred from held to maturity to available for sale - - - 190 Tax effects (16) 20 (6) (4) ------- ------- ------ ------ Other comprehensive income (loss) 30 (39) 12 9 ------- ------- ------ ------ Comprehensive income $ 458 $ 351 $1,249 $1,108 ======= ======= ====== ======
See accompanying notes to consolidated financial statements. 4 7 CAPITAL DIRECTIONS, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of management of the Registrant, the accompanying Consolidated Financial Statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the consolidated financial position of the Registrant as of September 30, 2000 and December 31, 1999, the results of operations for the three and nine month periods ended September 30, 2000 and 1999, and the cash flows for the nine month periods ended September 30, 2000 and 1999. 2. The results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year. 3. The accompanying unaudited Consolidated Financial Statements and the notes thereto should be read in conjunction with the Notes to Consolidated Financial Statements and the notes included therein, for the fiscal year-end 1999, included in the Registrant's 1999 Annual Report on Form 10-K. 4. New Accounting Standards Under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Investments and Hedging Activities, all derivative instruments are recorded at their fair market values. If derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged item are included in current earnings. Fair value adjustments related to cash flow hedges are recorded in other comprehensive income or loss and reclassified to earnings when the hedged transactions are reflected in earnings. Ineffective portions of hedges are reflected in income currently. As of April 1, 1999, the Company adopted SFAS No. 133, later amended by SFAS No. 137 and SFAS No. 138, and, in accordance with its provisions, chose to reclassify certain securities from held-to-maturity to available-for-sale. The amortized cost of the securities transferred to available-for-sale was $6,011,000 and the net unrealized gain was $190,000. Shareholder's equity increased by $125,000, net of income tax of $65,000, as a result of the transfer. The Company does not have derivative instruments in its portfolio to account for under provisions of this statement. 5. Management determines the adequacy of the allowance for loan losses based on an evaluation of the loan portfolio, recent loss experience, historical performance, current economic conditions, current analyses of asset quality and other pertinent factors. Non-performing loans are defined as all loans which are accounted for as non-accrual; loans 90 days or more past due and still accruing interest; or loans which have been renegotiated due to the borrowers' inability to comply with the original terms. As of September 30, 2000, non-performing loans totaled $122,000 or .14% of total loans. This represents a decrease of $216,000 from the $338,000 balance at December 31, 1999.
September 30, December 31, Non-performing loans 2000 1999 -------------------- ---- ---- Non-accrual $ 15,000 $ 32,000 90 days or more past due 107,000 306,000 Renegotiated - - -------- -------- Total $122,000 $338,000 ======== ======== Non-performing loans as a percent of: Total loans .14% .38% Allowance for loan losses 11.42% 32.04%
5 8 Note 5. Analysis of the allowance for loan losses (continued) The following table summarizes changes in the allowance for loan losses arising from loans charged-off, recoveries on loans previously charged-off, and additions to the allowance which have been charged to expense.
(Dollars in thousands) Nine Twelve Months Months Ended Ended September 30, December 31, 2000 1999 ---- ---- Balance at beginning of period $ 1,055 $ 1,011 Charge-offs (10) (37) Recoveries 17 33 --------- -------- Net (charge-offs) recoveries 7 (4) Additions to allowance for loan losses 6 48 --------- -------- Balance at end of period $ 1,068 $ 1,055 ========= ======== Average loans outstanding during the period $ 87,679 $ 86,397 ========= ======== Loans outstanding at end of period $ 87,488 $ 89,112 ========= ======== Allowance as a percent of: Total loans at end of period 1.22% 1.18% ========= ======== Non-performing loans at end of period 875.41% 312.13% ========= ======== Net charge-offs (recoveries) as a percent of: Average loans outstanding (.01)% .00% ========= ======== Allowance for loan losses (.66)% .38% ========= ========
6 9 Note 6. Earnings per share 6. A reconciliation of basic and diluted earnings per share for the three month and nine month periods ending September 30 follows:
(Dollars in thousands) Three months ended Nine months ended 2000 1999 2000 1999 ---- ---- ---- ---- Basic earnings per share Net income $ 428 $ 390 $ 1,237 $ 1,099 ========= =========== ========== ========== Shares outstanding 598,056 596,622 597,742 596,058 ======= ======= ======= ======= Per share amount .72 .65 2.07 1.84 === === ==== ==== Diluted earnings per share Net income $ 428 $ 390 $ 1,237 $ 1,099 ========= =========== ========== ========== Shares outstanding 598,056 596,622 597,742 596,058 ======= ======= ======= ======= Effect of dilutive securities- Stock options 5,088 5,646 5,397 5,236 ---------- ----------- -------- --------- 603,144 602,268 603,139 601,294 ======= ======= ======= ======= Per share amount .71 .65 2.05 1.83 === === ==== ====
Note 7. Stock Option Plan 7. Options to buy common stock are granted to officers and other key employees under a Stock Option Plan which provides for the issuance of up to 40,000 shares of common stock. The plan provides for stock options to be granted at prices that approximate the fair value of the stock at the respective dates of grant. The vesting of stock options does not start until two years from the date of the grant. After two years, the options will vest evenly over a three year period. The plan terminates on May 20, 2003. All shares and per share amounts have been restated for stock splits. 7 10 A summary of activity in the plan is as follows:
Weighted Weighted Average Fair Available Average Value of For Options Exercise Options Grant Outstanding Price Granted ------------ ------------ --------- ---------- Balance at January 1, 1999 24,933 14,800 $ 21.64 Granted (5,133) 5,133 35.88 $ 3.17 Exercised - (1,499) 15.10 Forfeited 662 (662) 33.94 ------------ ------------ --------- Balance December 31, 1999 20,462 17,772 25.85 Granted (4,000) 4,000 41.50 6.26 Exercised - (1,434) 14.34 Forfeited 1,131 (1,131) 29.44 ------------ ------------ --------- Balance September 30, 2000 17,593 19,207 $ 29.75 ============ ============ =========
For the options outstanding at September 30, 2000, the range of exercise prices was $12.75 to $41.50 per share with a weighted average remaining contractual term of 7.37 years. At September 30, 2000, 7,401 stock options were exercisable at a weighted average price of $20.28 per share. Had compensation cost for stock options been measured using SFAS No. 123, net income and earnings per share would have been the pro forma amounts indicated below for the nine months ended September 30, 2000 and 1999. The pro forma effect may increase in the future if more options are granted (in thousands, except per share data).
Nine Months Nine Months Ended Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Net income As reported $ 1,237 $ 1,099 Pro forma 1,230 1,090 Basic and diluted income per share As reported basic $ 2.07 $ 1.84 Pro forma basic 2.06 1.83 As reported diluted 2.05 1.83 Pro forma diluted 2.04 1.81
The pro forma effects are computed with option pricing models using the following weighted average assumptions as of the grant date.
2000 1999 ---- ---- Risk-free interest rate 6.76% 5.07% Expected option life 5 years 5 years Expected stock price volatility 6.40% 6.28% Expected dividend yield 3.04% 3.37%
8 11 Item 2. Management's discussion and analysis of financial condition and results of operations The following discussion and analysis of financial condition and results of operations provides additional information to assess the Consolidated Financial Statements of the Registrant and its wholly owned subsidiaries. Capital Directions, Inc. is a one-bank holding company, which commenced operations on July 22, 1988. This was facilitated by the acquisition of 100% of the outstanding shares of Mason State Bank in an exchange of common stock. The Company and its subsidiaries provide banking and financial services in the banking industry. Substantially all revenue and services are derived from banking products and services. The Bank's primary services include accepting retail deposits and making residential, consumer and commercial loans. The Corporation is not aware of any market or institutional trends, events or circumstances that will have or are reasonably likely to have a material effect on liquidity, capital resources, or results of operations except as discussed herein. Financial Condition (In thousands) Assets totaled $110,705 at September 30, 2000. The 4.72% increase of $4,992 from $105,713 at December 31, 1999 resulted from an increase in Federal funds sold, which were $0 at year-end, and investment securities, which were funded by an increase in Federal Home Loan Bank borrowings. Cash and cash equivalents have increased $4,962 or 157.47% in the nine month period from December 31, 1999 to September 30, 2000. This is a result of the sale of excess fed funds and a larger than usual cash letter clearings position. Total outstanding loans have decreased $1,624 during the first nine months of 2000. This is a decrease of 1.82% from December 31, 1999. This decline has been divided between the residential real estate portfolio and the installment loan portfolio, while the commercial and agricultural loan portfolio has grown slightly. Rising interest rates have resulted in a slowing of loan demand particularly in the residential real estate portfolio. All new loans booked in 2000 have been held within the loan portfolio. The allowance for loan losses increased $13 or 1.23% during the nine month period ending September 30, 2000. At September 30, 2000 the allowance as a percent of outstanding loans was 1.22% compared to 1.18% at December 31, 1999. Management continues to maintain the allowance for loan losses at a level considered appropriate to absorb losses inherent in the portfolio. Total deposits as of September 30, 2000 compared to year-end 1999 increased by $1,250 or 1.74%. This growth was realized in non interest bearing deposits, which increased $1,500 or 16.88% over year-end 1999, while interest bearing deposits decreased slightly. The increase in non interest bearing deposits resulted from end of quarter deposits by public fund entities. Federal Home Loan Bank borrowings increased by $4,610 or 24.44% in the first nine months of 2000. Attractive interest rates on these borrowings made it possible for the Bank to purchase securities, which provided approximately 100 basis points in additional net interest margin. In addition, a portion of the new borrowings was used after the end of the quarter to repay outstanding borrowings with higher interest rates. Total shareholders' equity increased $714 or 6.04% in the first nine months of 2000. Net income of $1,237, stock transactions from the exercise of options of $21and a change of $12 in net unrealized gains on available for sale securities, net of tax have increased shareholders' equity, while dividends declared of $556 reduced shareholders' equity. Book value per share was $20.97 at September 30, 2000 compared to $19.82 at December 31, 1999. 9 12 Item 2. Management's discussion and analysis of financial condition and results of operations (continued) Results of Operations (In thousands) For the third quarter of 2000, net income was $428, basic earnings per share was $.72, and diluted earnings per share was $.71, compared to $390, $.65 and $.65 for the same period in 1999. During the nine month period ending September 30, 2000, net income totaled $1,237, basic earnings per share was $2.07, and diluted earnings per share was $2.05, compared to $1,099, $1.84 and $1.83 for the same period in 1999. The following table illustrates the change in net interest margin for the nine months ended September 30, 2000 and September 30, 1999.
2000 1999 ---- ---- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ---- Loans (taxable) $87,770 $ 5,292 8.05% $ 85,040 $ 5,022 7.90% Loans (non-taxable) 315 22 9.33% 846 45 7.11% Taxable investment securities 8,208 415 6.75% 7,519 372 6.61% Non-taxable investment securities 3,179 192 8.07% 4,042 233 7.71% Federal funds sold and other 1,243 56 6.02% 821 33 5.37% ------- -------- -------- -------- Total interest earning assets $100,715 $ 5,977 7.93% $ 98,268 $ 5,705 7.76% ======== ======== Interest bearing demand deposits $ 10,692 $ 66 .82% $ 11,581 $ 90 1.04% Savings deposits 19,028 413 2.90% 19,553 389 2.66% Time deposits less than $100,000 20,549 848 5.51% 20,263 843 5.56% Time deposits $100,000 and more 11,814 520 5.88% 11,385 441 5.18% Federal funds purchased 276 13 6.29% 496 17 4.58% Other borrowings 20,406 908 5.94% 18,006 790 5.87% --------- --------- -------- --------- Total interest bearing liabilities $ 82,765 $ 2,768 4.47% $ 81,284 $ 2,570 4.23% ========= ======== Net Interest Income/Spread $ 3,209 3.46% $ 3,135 3.53% ======== ======== Net Interest Margin 4.26% 4.27%
Earning assets are presented on a fully taxable equivalent basis using a 34% tax rate, and average yields/rates are annualized. The two variables that have the most significant effect on the change in the net interest income are volume and rate. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. As illustrated in the following table, the Corporation had an increase in net interest income due primarily to loan growth and to increased interest rates. 10 13 Item 2. Management's discussion and analysis of financial condition and results of operations (continued)
Change in Net Interest Income (Dollars in thousands) 2000 compared to 1999 Volume Rate Total ------ ---- ----- Earning Assets Loans (taxable) $ 163 $ 107 $ 270 Loans (non-taxable) (34) 11 (23) Taxable investment securities 35 8 43 Non-taxable investment securities (52) 11 (41) Federal funds sold and other 19 4 23 ------ ------- ----- Total interest income 131 141 272 Interest Bearing Liabilities Interest bearing demand deposits (7) (17) (24) Savings deposits (11) 35 24 Time deposits <$100,000 12 (7) 5 Time deposits $100,000 and > 17 62 79 Federal funds purchased (9) 5 (4) Other borrowings 107 11 118 ------- ------- ----- Total interest expense $ 109 $ 89 $ 198 ------- -------- ----- Net Interest Income $ 22 $ 52 $ 74 ======= ======== =====
Earning assets are presented on a fully taxable equivalent basis using a 34% tax rate. The provision for loan losses was $0 during the third quarter of 2000 compared to $15 for the same period of 1999. For the nine months ended September 30, the provision was $6 in 2000 compared to $33 in 1999. This decrease is consistent with the decline in non-performing loans. Non interest income increased $64 or 48.12% during the third quarter of 2000 when compared to the third quarter of 1999. Increases in investment center income due to a higher volume of sales as well as increased service charge income and change in cash value on life insurance contributed to this increase. New service charges and fees have been implemented throughout the first nine months of 2000, which have enhanced earnings. For the nine months ended September 30, non interest income has increased $162 or 38.39% when compared to the similar period in 1999. This is a result of the same factors affecting the third quarter increase. Non interest expense increased $27 or 4.62% when comparing the third quarter of 2000 to 1999. Most of this increase is a result of increased personnel costs for salaries and payroll taxes. This is partially offset by a decline in merchant expenses. For the nine months ended September 30, 2000 non interest expense increased $80 or 4.31% compared to the same period in 1999. Salaries and benefits increased $86 or 8.43% as some vacant positions have been filled in addition to normal salary increases. Decreases were realized in correspondent fees, data processing and depreciation due to continued efforts to control expenses. The federal income tax provision for the third quarter of 2000 was $193, up $21 for the same period in 1999. Year-to-date the income tax provision has increased by $66 or 13.92%. This increase reflects a higher taxable income for 2000. 11 14 Item 2. Management's discussion and analysis of financial condition and results of operations (continued) Liquidity and interest rate risk (In thousands) The primary objective of asset/liability management is to assure the maintenance of adequate liquidity and maximize net interest income by maintaining appropriate maturities and balances between interest sensitive earning assets and interest bearing liabilities. Liquidity management ensures sufficient funds are maintained to meet the cash withdrawal requirements of depositors and the credit demand of borrowers. Sources of liquidity include federal funds sold, investment security maturities and principal payments. A net average balance of $1,781 in federal funds sold was maintained during the third quarter of 2000. As a member of the Federal Home Loan Bank system, the Bank has access to an alternate funding source, lower cost for credit services, and an additional tool to manage interest rate risk. During the first nine months of 2000, the Bank used this source of funding to offset security purchases to be used as collateral for public deposits and as a direct offset for a specific loan. Other sources of liquidity include internally generated cash flow, repayments and maturities of loans, borrowing and normal deposit growth. The primary source of funds for the parent company is the upstream of dividends from the Bank. Management believes these sources of liquidity are sufficient for the Bank and parent company to continue current business plans. At September 30, 2000 the securities available for sale were valued at $11,141. It is not anticipated that management will use these funds due to the optional sources that may be available. Interest rate sensitivity management seeks to maximize net interest margin through periods of changing interest rates. The Bank develops strategies to assure desired levels of interest sensitive assets and interest bearing liabilities mature or reprice within selected time frames. Strategies include the use of variable rate loan products in addition to managing deposit accounts and maturities in the investment portfolio. The following table, using recommended regulatory standards, reflects the "rate sensitive position" or the difference between loans and investments, and liabilities that mature or reprice within the next year and beyond. The financial industry has generally referred to this difference as "GAP" and its handling as "GAP Management". Throughout the third quarter of 2000, the results of the GAP analysis were within the Bank's policy guidelines. At September 30, 2000, the percentage of rate sensitive assets to rate sensitive liabilities within the one-year time horizon was 39%. The following table shows the Corporation's GAP position as of September 30, 2000. The Corporation has a liability sensitive position of approximately $38,869 within the one-year time horizon which indicates higher net interest income may be earned if rates decrease during the period. Due to the limitations of GAP analysis, modeling is also used to enhance measurement and control. 12 15 Item 2. Management's discussion and analysis of financial condition and results of operations (continued))
GAP Measurement (Dollars in thousands) 0-30 31-90 2nd 3rd 4th Annual 1-3 3-5 Over 5 Days Days Quarter Quarter Quarter Total Years Years Years Total -------- ------- ------- -------- ------- -------- -------- ------- -------- -------- Assets - ------ Loans $ 5,778 $6,745 $1,157 $ 2,020 $1,928 $ 17,628 $ 6,498 $8,523 $54,839 $ 87,488 Allowance for loan losses - - - - - - - - - -1,068 Investments 1,757 516 1,023 1,018 - 4,314 5,273 1,905 823 12,315 Short-term Investments 3,350 - - - - 3,350 - - - 3,350 Other non- earning assets - - - - - - - - - 8,620 -------- ------- ------ ------- ------ -------- -------- ------- -------- --------- Total $ 10,885 $ 7,261 $2,180 $ 3,038 $1,928 $ 25,292 $ 11,771 $10,428 $ 55,662 $ 110,705 ======== ======= ====== ======= ====== ======== ======== ======= ======== ========= Liabilities Non interest bearing deposits $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 10,384 Interest bearing deposits 37,186 7,429 4,446 3,088 4,788 56,937 4,793 1,014 152 62,896 Long-term FHLB borrowings 1,000 2,632 1,092 1,500 1,000 7,224 12,075 3,250 922 23,471 Other liabilities - - - - - - - - - 1,412 Capital - - - - - - - - - 12,542 -------- -------- -------- -------- -------- --------- --------- ------- ------- --------- Total $ 38,186 $ 10,061 $ 5,538 $ 4,588 $ 5,788 $ 64,161 $ 16,868 $ 4,264 $1,074 $ 110,705 ======== ======== ======== ======== ======== ========= ========= ======= ======= ========= GAP $-27,301 $ -2,800 $- 3,358 $- 1,550 $- 3,860 $- 38,869 $- 5,097 $ 6,164 $54,588 Cumulative GAP $-27,301 $-30,101 $-33,459 $-35,009 $-38,869 $- 38,869 $-43,966 $-37,802 $16,786 GAP ratio 29% 72% 39% 66% 33% 39% 70% 245% 5183%
13 16 Item 2. Management's discussion and analysis of financial condition and results of operations (continued) Capital Resources (Dollars in thousands, except per share amounts) The Corporation's capital adequacy is reviewed continuously to ensure that sufficient capital is available to meet current and future funding needs and comply with regulatory requirements. Shareholders' equity, excluding the net unrealized gain on securities available for sale, net of tax, increased $702 or 5.95% to $12,497 for the first nine months of 2000. This represents 11.29% of total assets. At September 30, 1999, the similar ratio of shareholders' equity to total assets was 11.16%. Dividends declared per common share for the nine months ended September 30 increased by 10.71% to $.93 per share in 2000 compared to $.84 in 1999. Regulators established "risk-based" capital guidelines that became effective December 31, 1990. Under the guidelines, minimum capital levels are established for risk based and total assets based on perceived risk in asset categories and certain off-balance-sheet items, such as loan commitments and standby letters of credit. On September 30, 2000, the Bank has a "risk-based" total capital to asset ratio of 18.56%. The ratio exceeds the requirements established by regulatory agencies as shown below.
Minimum Required (Dollars in thousands) For Capital Under Prompt Corrective September 30, 2000 Actual Adequacy Purposes Action Regulations ------ ----------------- ------------------ Amount Ratio Amount Ratio Amount Ratio Total capital (to risk weighted assets) $ 13,327 18.56% $ 5,744 8.00% $ 7,180 10.00% Tier 1 capital (to risk weighted assets) 12,427 17.31 2,872 4.00 4,308 6.00 Tier 1 capital (to average assets) 12,427 11.60 4,284 4.00 5,354 5.00
Bank management does not perceive that future rate changes or inflation will have a material impact on capital adequacy. It is the opinion of management that capital and shareholders' equity is adequate and will continue to be so throughout 2000. Item 3. Quantitative and qualitative disclosures about market risk Not required as Registrant meets requirements to be a small business filer. Part II - Other Information Item 1. Legal proceedings The Corporation is not involved in any material pending legal proceedings to which the Registrant or its subsidiaries is a party or which any of its property is subject, except for proceedings which arise in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial statements of the Registrant or its subsidiaries as of and for the period ended September 30, 2000. Item 2. Changes in securities and use of proceeds During the nine months ended September 30, 2000, there weren't any changes in the Registrant's securities, relevant to the requirements of this section, that would cause any shareholder's rights to be materially modified, limited or qualified. 14 17 Item 3. Defaults upon senior securities No defaults have occurred involving senior securities on the part of the Registrant. Item 4. Submission of matters to a vote of security holders The annual meeting of security holders of the Company was held April 27, 2000. Information concerning the matters brought to a vote of security holders is contained in the Company's Proxy Statement and Notice of Annual Meeting of Shareholders held April 27, 2000, as previously filed. There have been no further matters submitted to a vote of the Registrant's security holders during the nine months ended September 30, 2000. Item 5. Other information None. Item 6. Exhibits and reports on Form 8-K 1. Exhibits required by Item 601 of Regulation S-K See Index to Exhibits on page 17. 2. Reports on Form 8-K No reports on Form 8-K were filed for the three months ended September 30, 2000. 15 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. CAPITAL DIRECTIONS, INC. Date: November 7, 2000 By: /s/ Timothy Gaylord ---------------- --------------------------------- Timothy Gaylord President Date: November 7, 2000 By: /s/ Lois A. Toth ---------------- --------------------------------- Lois A. Toth . Treasurer 16 19 Index to Exhibits The following exhibits are filed or incorporated by reference as part of this report: 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession - Consolidation Agreement included in Amendment No. 1 to Form S-4 Registrant Statement No. 33-20417 3 Instruments Defining the Rights of Security Holders, Including Debentures - Not applicable 11 Statement Regarding Computation of Per Share Earnings - Not applicable 15 Letter Regarding Unaudited Interim Financial Information - Not applicable 18 Letter Regarding Change in Accounting Principals - Not applicable 19 Previous Unfiled Documents - Not applicable 20 Report Furnished to Security Holders - Not applicable 23 Published Report Regarding Matters Submitted to Vote of Security Holders - Not applicable 24 Consents of Experts and Counsel - Not applicable 25 Power of Attorney - Not applicable 27 Financial Data Schedule (filed herewith) 28 Additional Exhibits - Not applicable 17 EX-27 2 k58499ex27.txt FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2000 THIRD QUARTER 10-Q. 1000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,732 31 3,350 0 11,141 0 0 87,488 1,068 110,705 73,280 0 1,412 23,471 0 0 2,990 9,552 110,705 5,306 542 56 5,904 1,847 2,768 3,136 6 0 1,937 1,777 1,237 0 0 1,237 2.07 2.05 4.26 15 107 0 0 1,055 10 17 1,068 571 0 497
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