-----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, OY1khy+Af2/n7CPVxOGjgBViprxHK6YUXEiUmvi7wQ667tW295SHTNDo86aTnu9Q 2bkwcH2tk41iWIEkRieAuQ== 0000950124-97-002916.txt : 19970515 0000950124-97-002916.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950124-97-002916 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITOL BANCORP LTD CENTRAL INDEX KEY: 0000840264 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 382761672 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-24728-C FILM NUMBER: 97605378 BUSINESS ADDRESS: STREET 1: ONE BUSINESS & TRADE CNTR STREET 2: 200 WASHINGTON SQ N CITY: LANSING STATE: MI ZIP: 48933 BUSINESS PHONE: 5174876555 MAIL ADDRESS: STREET 1: ONE BUSINESS & TRADE CENTER STREET 2: 200 WASHINGTON SQUARE NORTH CITY: LANSING STATE: MI ZIP: 48933 10-Q 1 10-Q 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 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 3 PART I, ITEM I CAPITOL BANCORP LTD. Consolidated Balance Sheets As of March 31, 1997 and December 31, 1996
March 31 December 31 1997 1996 -------- ----------- (in thousands) 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 ======== ========
Page 3 of 18 4 CAPITOL BANCORP LTD. Consolidated Statements of Income For the Three Months Ended March 31, 1997 and 1996 (in thousands, except per share data)
1997 1996 ----- ----- 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 ======= =======
Page 4 of 18 5 CAPITOL BANCORP LTD. Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1997 and 1996
1997 1996 --------- ---------- (in thousands) OPERATING ACTIVITIES 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 ======= =======
Page 5 of 18 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 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 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 9
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% --- =========== ==========
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.
March 31, 1997 December 31, 1996 ------------------------------- --------------------------- % % 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 ========= ==========
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 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):
March 31 Dec 31 1997 1996 --------- --------- 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 ========= =========
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 11 The following comparative analysis summarizes each bank's total portfolio loans, allowance for loan losses, nonperforming assets and certain ratios (dollars in thousands):
Total Allowances for Portfolio Loans Loan Losses ---------------------------- -------------------------------- March 31 Dec 31 March 31 Dec 31 1997 1996 1997 1996 -------- ------ -------- ------- 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 -------- ------- -------- ------- 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% ======= ======= ======= ======
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 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:
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 --------- --------- -------- ------- ------- ------- ------- ------- 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% ======== ======== ======= ======= ===== ===== ==== ====
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 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 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 15
Ann Arbor Bank Brighton Capitol Grand Commerce of Commerce National Haven Bank Tucson(1) Bank(1) Bank Bank (1) ----------- --------- -------- --------- --------- 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 --------- --------- -------- -------- -------- ------------ 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%
(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 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 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 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 19 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 11 Statement regarding computation of per share earnings. 27 Financial Data Schedule EX-11 2 EX-11 1 EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS CAPITOL BANCORP LTD.
Quarter Ended March 31 --------------------------------- 1997 1996 (A) ---- -------- 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 =========== ==========
(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. EX-27 3 EX-27
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 21,643 55 54,800 0 52,910 0 0 395,860 4,956 540,879 480,738 3,000 4,808 5,550 0 0 35,346 5,772 540,879 9,144 1,390 0 10,534 5,126 5,166 5,368 454 10 3,858 1,890 1,262 0 0 1,262 .27 .27 0 1,291 700 0 0 4,578 227 151 4,956 4,956 0 2,415
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