-----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, Q8Iau84qLG0W9UDoFqXbyjEymPHITkd/ckfBJxBSzT3l0E63QDQdNXb2WaOMeIWK j9qtTL3XGo/yA3KV9KncwA== 0000950124-99-004650.txt : 19990813 0000950124-99-004650.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950124-99-004650 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL DIRECTIONS INC CENTRAL INDEX KEY: 0000830157 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 99685705 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 QUARTERLY REPORT DATED 6/30/99 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 June 30, 1999 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 July 15, 1999 the registrant had outstanding 596,622 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. Consolidated Balance Sheets June 30, 1999 and December 31, 1998................................ 1 Consolidated Statement of Income for the three and six month periods ended June 30, 1999 and 1998............................... 2 Consolidated Statement of Cash Flows for the six month periods ended June 30, 1999 and 1998............................... 3 Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 1999............................. 4 Notes to Interim Consolidated Financial Statements................. 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 6-11 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................................. 11 Item 2. Changes in Securities.............................................. 11 Item 3. Defaults Upon Senior Securities ................................... 11 Item 4. Submission of Matters to a Vote of Security Holders................ 11 Item 5. Other Information.................................................. 11 Item 6. Exhibits and Reports on Form 8-K................................... 11 Item 7. Signatures......................................................... 12 Index to Exhibits.................................................. 13 3 PART I - FINANCIAL INFORMATION CAPITAL DIRECTIONS, INC. CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) June 30, December 31, 1999 1998 ----- ---- (Unaudited) ASSETS Cash and non interest bearing deposits $ 2,332 $ 2,695 Interest bearing deposits 40 26 Federal funds sold - 600 --------- --------- Total cash and cash equivalents 2,372 3,321 Securities available for sale 9,640 5,320 Securities held to maturity (fair value of $6,484 as of December 31, 1998) - 6,276 Federal Home Loan Bank (FHLB) stock 975 787 --------- --------- Total investment securities 10,615 12,383 Loans: Commercial and agricultural 5,448 5,547 Installment 3,399 3,368 Real estate mortgages 78,502 73,000 --------- --------- Total loans 87,349 81,915 Allowance for loan losses (1,026) (1,011) --------- --------- Net loans 86,323 80,904 Premises and equipment, net 755 784 Accrued income and other assets 3,178 2,837 --------- --------- Total assets $ 103,243 $ 100,229 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Non interest bearing $ 10,305 $ 10,288 Interest bearing 59,862 62,101 --------- --------- Total deposits 70,167 72,389 Federal funds purchased 1,050 - Long-term FHLB borrowings 19,005 15,593 Other liabilities 1,575 1,250 --------- --------- Total liabilities 91,797 89,232 SHAREHOLDERS' EQUITY Common stock: $5 par value, 1,300,000 shares authorized; 596,622 outstanding June 30, 1999 and 595,123 outstanding December 31, 1998 2,983 2,976 Additional paid in capital 2,576 2,561 Retained earnings 5,798 5,418 Net unrealized gains/(losses) on securities available for sale, net of tax of $46 as of June 30, 1999 and $22 as of December 31, 1998 89 42 --------- --------- Total shareholders' equity 11,446 10,997 --------- --------- Total liabilities and shareholders' equity $ 103,243 $ 100,229 ========= =========
See accompanying notes to consolidated financial statements. 1 4 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
---------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Interest and Dividend Income Interest and fees on loans $ 1,695 $ 1,407 $ 3,338 $ 2,768 Federal funds sold 6 33 12 57 Interest and dividends on investment securities: Taxable 120 168 249 351 Tax exempt 53 50 109 102 Other interest income 2 6 3 6 --------- --------- --------- --------- Total interest income 1,876 1,664 3,711 3,284 Interest Expense Deposits 576 622 1,174 1,235 Short-term borrowings 11 - 15 1 Long-term borrowings 276 146 510 239 --------- --------- --------- --------- Total interest expense 863 768 1,699 1,475 --------- --------- --------- --------- Net Interest Income 1,013 896 2,012 1,809 Provision for loan losses 9 (9) 18 (17) --------- --------- --------- --------- Net interest income after provision for loan losses 1,004 905 1,994 1,826 Non Interest Income Service charges on deposit accounts 70 72 132 140 Net gain (loss) on sale of loans - (2) - (1) Net gain (loss) on sale and call of securities - (5) - (18) Other income 83 98 157 163 --------- --------- --------- --------- Total non interest income 153 163 289 284 Non Interest Expense Salaries and employee benefits 342 355 693 724 Premises and equipment 76 77 156 155 Other operating expense 228 184 423 354 --------- --------- --------- --------- Total non interest expense 646 616 1,272 1,233 Income before income tax expense 511 452 1,011 877 Income tax expense 154 132 302 254 --------- --------- --------- --------- Net Income $ 357 $ 320 $ 709 $ 623 ========= ========= ========= ========= Average common shares outstanding 596,127 595,056 595,772 595,056 Basic earnings per common share 0.60 0.54 1.19 1.05 Diluted earnings per common share 0.59 0.53 1.18 1.04 Dividends per share of common stock, declared 0.28 0.23 0.55 0.42
See accompanying notes to consolidated financial statements. 2 5 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) Six Months Ended June 30, 1999 1998 ---- ---- Cash flows from operating activities Net income $ 709 $ 623 Adjustments to reconcile net income to net cash from operating activities Depreciation 61 61 Provision for loan losses 18 (17) Net amortization (accretion) on securities 19 18 Net gain (loss) on sales of non-residential loans - 1 Net gain (loss) on securities - 18 Changes in assets and liabilities: Accrued interest receivable (53) 32 Accrued interest payable 10 (27) Other assets (316) (251) Other liabilities 308 231 -------- -------- Net cash from operating activities 756 689 Cash flows from investing activities Securities available for sale: Purchases (1,277) (4,693) Maturities, calls and principal payments 2,836 3,713 Securities held to maturity: Maturities, calls and principal payments 265 1,223 Proceeds from sale of non-residential loans - 68 Net change in loans (5,437) (7,594) Premises and equipment expenditures (32) (41) -------- -------- Net cash from investing activities (3,645) (7,324) Cash flows from financing activities Net change in deposits (2,222) 7,761 Federal funds purchased 1,050 (450) Proceeds from long-term FHLB borrowings 4,000 8,350 Repayment of long-term FHLB borrowings (588) (86) Proceeds from shares issued upon exercise of stock options 22 - Dividends paid (322) (247) -------- -------- Net cash from financing activities 1,940 15,328 -------- -------- Net change in cash and cash equivalents (949) 8,693 Cash and cash equivalents at beginning of year 3,321 2,188 -------- -------- Cash and cash equivalents at end of period $ 2,372 $ 10,881 ======== ======== Supplemental disclosure of cash flow information Cash paid during the year for: Interest $ 1,688 $ 1,503 Income taxes - federal $ 301 269
See accompanying notes to consolidated financial statements. 3 6 CAPITAL DIRECTIONS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) For the six months ended June 30, 1999 and 1998
- ----------------------------------------------------------------------------------------------------------------------------------- (In thousands, except share and per share data) Net Unrealized Gain On Securities Total Additional Available Share- Common Paid-In Retained For Sale, Holders' Stock Capital Earnings Net of Tax Equity ------- ------- -------- ---------- ------ Balance, January 1, 1998 $ 2,975 $ 2,561 $ 4,652 $ 28 $ 10,216 Net income - - 623 - 623 Other comprehensive income, net: Net change in unrealized gain on securities available for sale, net of tax of $(1) - - - (2) (2) -------- Comprehensive income 621 Cash dividends ($.415 per share) (246) (246) -------- -------- -------- -------- -------- Balance, June 30, 1998 $ 2,975 $ 2,561 $ 5,029 $ 26 $ 10,591 ======== ======== ======== ======== ======== Balance, January 1, 1999 $ 2,976 $ 2,561 $ 5,418 $ 42 $ 10,997 Net income - - 709 - 709 Other comprehensive income, net: Net change in unrealized gain on securities available for sale, net of tax of $24 - - - 47 47 -------- Comprehensive income 756 Issuance of 999 shares of common stock upon exercise of stock options 7 15 - - 22 Cash dividends ($.55 per share) (329) (329) -------- -------- -------- -------- -------- Balance, June 30, 1999 $ 2,983 $ 2,576 $ 5,798 $ 89 $ 11,446 ======== ======== ======== ======== ========
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 June 30, 1999 and December 31, 1998, the results of operations and cash flows for the six month periods ended June 30, 1999 and 1998, and the changes in shareholders' equity for the six month periods ended June 30, 1999 and 1998. 2. The results of operations for the six months ended June 30, 1999 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 1998, included in the Registrant's 1998 Annual Report. 4. During the second quarter of 1999, the Bank transferred securities from the held to maturity portfolio to the available for sale portfolio in accordance with the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. At the date of transfer, these securities had an amortized cost of $6,010,847 and increased the unrealized gain on securities available for sale and shareholders' equity by $125,575, net of tax of $64,689. 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 June 30, 1999, non-performing loans totaled $36,000 or .04% of total loans. This represents a decrease of $337,000 from the $373,000 balance at December 31, 1998.
June 30, December 31, Non-performing loans 1999 1998 -------------------- ---- ---- Non-accrual $ 34,000 $243,000 90 days or more past due 2,000 130,000 Renegotiated - - -------- -------- Total $ 36,000 $373,000 ======== ======== Non-performing loans as a percent of: Total loans .04% .46% Allowance for loan losses 3.51% 36.89%
5 8 Analysis of the allowance for loan losses The following table summarizes changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged-off, and addition or reductions to the allowance which have been charged or credited to expense.
(In thousands) Six Twelve Months Months Ended Ended June 30, December 31 1999 1998 ---- ---- Balance at beginning of period $ 1,011 $ 1,035 Charge-offs (24) (30) Recoveries 21 29 -------- -------- Net charge-offs (3) (1) Additions (reductions) to allowance for loan losses 18 (23) -------- -------- Balance at end of period $ 1,026 $ 1,011 ======== ======== Average loans outstanding during the period $ 84,988 $ 69,172 ======== ======== Loans outstanding at end of period $ 87,349 $ 81,915 ======== ======== Allowance as a percent of: Total loans at end of period 1.17% 1.23% ======== ======== Non-performing loans at end of period 2,850.00% 271.05% ======== ======== Net charge-offs as a percent of: Average loans outstanding .00% .00% ======== ======== Allowance for loan losses .29% .10% ======== ========
6. The provision for income taxes represents federal income tax expense calculated using annualized rates on taxable income generated during the respective periods. 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. 6 9 Financial Condition (In thousands) Assets totaled $103,243 at June 30, 1999. The 3.0% increase of $3,014 from $100,229 at December 31, 1998 resulted primarily from continued strong growth in mortgage lending. This growth was supported largely by an increase in Federal Home Loan Bank borrowings. Cash and cash equivalents have decreased $949 or 28.58% in the six month period from December 31, 1998 to June 30, 1999. This is a result of reducing excess available funds which are normally sold as an overnight investment of federal funds. Total outstanding loans have increased $5,434 during the first six months of 1999. This is an increase of 6.63% from December 31, 1998. The majority of this growth has been in the residential real estate portfolio. All new loans booked in 1999 have been held within the loan portfolio. As additional demand for real estate lending is realized, management may consider selling newly issued loans on the secondary market. The allowance for loan losses increased $15 or 1.48% during the six month period ending June 30, 1999. At June 30, 1999 the allowance as a percent of outstanding loans was 1.17% compared to 1.23% at December 31, 1998. 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 June 30, 1999 compared to year-end 1998 decreased $2,222 or 3.07%. The largest portion of this decline was concentrated in interest bearing accounts. Average total deposits have increased $3,985 or 5.88% since year-end 1998. Total shareholders' equity increased $449 or 4.01% in the first six months of 1999. Net income of $709, stock transactions from the exercise of options of $22 and net unrealized gains on available for sale securities of $47 have increased shareholders' equity, while dividends of $329 reduced shareholders' equity. Book value per share was $19.21 at June 30, 1999 compared to $18.48 at December 31, 1998. Results of Operations (In thousands) For the second quarter of 1999 and 1998 net income totaled $357 and $320, respectively. During the six month periods of 1999 and 1998, net income totaled $709 and $623, respectively. The increases in earnings during these periods are principally the result of increases in net interest income. These increases in revenue were partially offset by increases in non interest expense, the provision for loan losses and income tax expense. Basic earnings per share for the year to date were $1.19, and diluted earnings per share were $1.18, compared to $1.05, and $1.04 for the same period in 1998. For the second quarter of 1999 basic earnings per share were $0.60, and diluted earnings per share were $0.59, compared to $0.54 and $0.53 for the same period of 1998. Average earning assets increased to $97,387 or 20.40% from June 30, 1998 to June 30, 1999. The average yield on earning assets decreased to 7.86% for the period ended June 30, 1999 from 8.31% for the comparable period in 1998. Average costs for rate related liabilities decreased 22 basis points to 3.81% at June 30, 1999 from 4.03% at June 30, 1998. Net interest margin decreased to 4.30% for the first six months of 1999 compared to 4.63% in the same period of 1998. This is a result of a lower rate environment. The provision for loan losses was $9 during the second quarter of 1999 compared to $(9) for the same period of 1998. For the six months ended June 30, the provision was $18 in 1999 compared to $(17) in 1998. This increase is consistent with the growth of the loan portfolio. Non interest income decreased $10 or 6.13% during the second quarter of 1999 when compared to the second quarter of 1998. Decreases in loan servicing income, investment center income, service charge income and change in cash value on life insurance contributed to this decline. Increases in ATM fee income partially offset this decline. Non interest income for the six month period ended June 30, 1999 7 10 increased $5 or 1.76% when compared to 1998. The 1998 totals included a loss of $18 incurred on investment securities. Decreases in loan servicing income, investment center income, cash value on life insurance and deposit service charges impacted year-to-date earnings. ATM income partially offset these decreases. Non interest expense increased $30 or 4.87% when comparing the second quarter of 1999 to 1998. Most of this increase is a result of increased data processing costs, consulting fees and correspondent service charges. Decreased expenses were realized for salaries and employee benefits. For the six months ended June 30, 1999 non interest expense increased $39 or 3.16% compared to the same period in 1998. Salaries and benefits declined $31 or 4.47% as well as marketing expenses, which declined $9 or 36%. Increases were realized in data processing, consulting fees, supplies and correspondent fees. The federal income tax provision for the second quarter of 1999 was $154, up from $22 for the same period in 1998. Year-to-date the income tax provision has increased by $48 or 18.9%. This increase reflects a higher taxable income for 1999. Liquidity and interest rate risk 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 $497,000 in federal funds sold was maintained during the second quarter of 1999. 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 six months of 1999, the Bank used this source of funding to offset new mortgage loan demand. 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 June 30, 1999 the securities available for sale were valued at $9,640,000. 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 second quarter of 1999, the results of the GAP analysis were within the Bank's policy guidelines. At June 30, 1999, the percentage of rate sensitive assets to rate sensitive liabilities within the one-year time horizon was 75%. The following table shows the Corporation's GAP position as of June 30, 1999. The Corporation has a liability sensitive position of approximately $10,064,000 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. 8 11
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 $ 9,179 $3,558 $5,144 $3,725 $4,954 $26,560 $11,139 $14,340 $41,458 $93,497 Loan repayment offset - - - - - - - - - -6,148 Allowance for loan losses - - - - - - - - - -1,026 Investments 1,436 220 965 225 1,140 3,986 2,934 1,861 2,634 11,415 Mortgage- backed repayments - - - - - - - - - -800 Short-term Investments 40 - - - - 40 - - - 40 Other non- earning assets - - - - - - - - - 6,265 ------- ------ ------ ------- ------- ------- ------ ------ ------- -------- Total $10,655 $3,778 $6,109 $ 3,950 $ 6,094 $30,586 $14,073 $16,201 $44,092 $ 103,243 ======= ====== ====== ======= ======= ======= ======= ======= ======= ========= Liabilities Non interest bearing deposits $ 384 $ 757 $1,244 $ 1,140 $ 1,140 $ 4,665 $2,592 $2,592 $ 456 $ 10,305 Interest bearing deposits 7,868 8,868 6,169 5,419 5,378 33,702 13,314 6,848 5,998 59,862 Federal funds purchased 1,050 - - - - 1,050 - - - 1,050 Long-term FHLB borrowings - - 144 1,089 - 1,233 863 13,961 2,948 19,005 Other liabilities - - - - - - - - - 1,575 Capital - - - - - - - - - 11,446 ------- ------ ------ ------- ------- ------- ------ ------ ------- --------- Total $ 9,302 $9,625 $7,557 $ 7,648 $ 6,518 $40,650 $16,769 $23,401 $ 9,402 $ 103,243 ======= ====== ====== ======= ======= ======= ======= ======= ======= ========= GAP $ 1,353 $-5,847 $-1,448 $-3,698 $ -424 $-10,064 $-2,696 $-7,200 $34,690 Cumulative GAP $ 1,353 $-4,494 $-5,942 $-9,640 $-10,064 $-10,064 $-12,760 $-19,960 $14,730 GAP ratio 115% 39% 81% 52% 93% 75% 84% 69% 469%
9 12 Capital Resources 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, increased $402,000 or 3.67% to $11,357,000 for the first six months of 1999. This represents 11.00% of total assets. At June 30, 1998, the similar ratio of shareholders' equity to total assets was 10.93%. Dividends declared per common share increased by 30.95% to $.55 per share in 1999 compared to $.42 in 1998. 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 June 30, 1999, the Bank has a "risk-based" total capital to asset ratio of 17.62%. The ratio exceeds the requirements established by regulatory agencies as shown below.
Capital June 30, 1999 (Dollars in thousands) Risk-based Leverage Actual amount $12,309 $11,283 Actual percentage 17.62% 10.86% Required amount $ 5,514 $ 4,157 Required percentage 8.00% 4.00% Excess amount $ 6,795 $ 7,126
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 1999. Impact of Year 2000 compliance The approach of the Year 2000 presents potential problems to businesses that utilize computer systems in their daily operations. Some computer systems may not be able to properly interpret dates after December 31, 1999, as they may use only two digits to indicate the year. Thus, a date using "00" as the year may be recognized as the year 1900 rather than the year 2000. Capital Directions, Inc. has been working since 1997 to verify that our systems are ready for year 2000, or Y2K. A team of bank professionals meet on a regular basis to work through the phases of the bank's Y2K plan and status updates are made quarterly to the Board of Directors. As outlined in the plan, the scope of the year 2000 project includes the compliance of all operating systems and hardware on all platforms in the areas of both information and non-information technology. All of our critical systems have been renovated, tested and returned to production. Throughout 1999 we will continue testing our systems. This will include participation in industry-wide tests, as well as tests with our business partners, to verify that information can flow back and forth between our companies' systems. In addition, we have developed detailed contingency plans to cope with the unexpected. We fully expect the year 2000 to be business as usual. We have hosted several Y2K community outreach programs and will continue throughout 1999. Our desire is to inform customers and consumers not only as to the bank's Y2K status; but, also to provide information on the banking industry as a whole, as well as to provide information to consumers on such services as power, telecommunications, local government, emergency services and Y2K fraud awareness. Capital Directions expects to spend approximately $45,000 associated with the year 2000; 80% of which can be attributed to salaries. The corporation earnings have been adequate to handle year 2000 10 13 Impact of Year 2000 compliance (continued) expenditures with no delay to other capital expenditures. It is difficult to predict exact expenses associated with the year 2000 issue and additional funds may be needed for unknown expenses that may occur. All customers that have a borrowing or deposit relationship in excess of $250,000 have been interviewed and an evaluation of their year 2000 preparedness has been completed. All material customers are making good progress on their year 2000 plans. The corporation does not expect to experience credit deterioration due to the year 2000 issue. The corporation may face a liquidity risk if the public perceives liquidity risk involved with the year 2000 and withdraws funds from the banking system. The corporation has established lines of credit to handle this uncertainty. No one can predict with absolute certainty the outcome of any event. However, due to our program, early recognition of the issues and commitment, customers can be confident that our thorough preparation will enable our computer systems to continue to meet their financial needs. 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 June 30, 1999. Item 2. Changes in securities During the six months ended June 30, 1999, 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. 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 22, 1999. Information concerning the matters brought to a vote of security holders is contained in the Company's Proxy Statement and Note of Annual Meeting of Shareholders held April 22, 1999, as previously filed. There have been no further matters submitted to a vote of the Registrant's security holders during the six months ended June 30, 1999. 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 13. 2. Reports on Form 8-K No reports on Form 8-K were filed for the three months ended June 30, 1999. 11 14 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: August 9, 1999 By: /s/ Timothy Gaylord -------------- --------------------------------- Timothy Gaylord President Date: August 9, 1999 By: /s/ Lois A. Toth -------------- --------------------------------- Lois A. Toth . Treasurer 12 15 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 13 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 SECOND QUARTER 10-Q. 1000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 2,332 40 0 0 9,640 0 0 87,349 1,028 103,243 70,167 1,050 1,575 19,005 0 0 2,983 8,463 103,243 3,338 358 15 3,711 1,174 525 2,012 18 0 1,272 1,011 1,011 0 0 709 1.19 1.18 4.30 34 2 0 0 1,011 24 21 1,026 576 0 450
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