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, 2000 Commission file number 33-20417
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Capital Directions, Inc.
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(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 26, 2000 the registrant had outstanding 598,056 shares of common
stock having a par value of $5 per share.
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CAPITAL DIRECTIONS, INC.
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1. Consolidated Balance Sheets
June 30, 2000 and December 31, 1999.......................................... 1
Consolidated Statements of Income for the Three and Six Month
Periods ended June 30, 2000 and 1999......................................... 2
Consolidated Statements of Cash Flows for the Six Month
Periods ended June 30, 2000 and 1999......................................... 3
Consolidated Statements of Comprehensive Income
for the Three and Six Month Periods ended June 30, 2000 and 1999............. 4
Notes to Interim Consolidated Financial Statements........................... 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 9-14
PART II - OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings............................................................ 14
Item 2. Changes in Securities........................................................ 14
Item 3. Defaults Upon Senior Securities.............................................. 14
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
Item 7. Signatures................................................................... 16
Index to Exhibits............................................................ 17
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PART I - FINANCIAL INFORMATION
CAPITAL DIRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
Cash and non interest bearing deposits $ 2,493 $ 3,097
Interest bearing deposits 29 54
Federal funds sold 1,223 --
--------- ---------
Total cash and cash equivalents 3,745 3,151
Securities available for sale 10,529 9,751
Federal Home Loan Bank (FHLB) stock 1,064 975
--------- ---------
Total investment securities 11,593 10,726
Loans:
Commercial and agricultural 5,646 5,268
Installment 4,039 4,574
Real estate mortgages 78,199 79,270
--------- ---------
Total loans 87,884 89,112
Allowance for loan losses (1,063) (1,055)
--------- ---------
Net loans 86,821 88,057
Premises and equipment, net 747 768
Accrued income and other assets 3,095 3,011
--------- ---------
Total assets $ 106,001 $ 105,713
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non interest bearing $ 10,019 $ 8,884
Interest bearing 61,883 63,146
--------- ---------
Total deposits 71,902 72,030
Federal funds purchased -- 1,700
Long-term FHLB borrowings 20,471 18,861
Other liabilities 1,353 1,294
--------- ---------
Total liabilities 93,726 93,885
SHAREHOLDERS' EQUITY
Common stock: $5 par value, 1,300,000 shares authorized;
598,056 outstanding at June 30, 2000 and 596,622 outstanding
at December 31, 1999 2,990 2,983
Additional paid in capital 2,590 2,576
Retained earnings 6,680 6,236
Accumulated other comprehensive income,
net of tax of $8 as of June 30, 2000 and $17 as of
December 31, 1999 15 33
--------- ---------
Total shareholders' equity 12,275 11,828
--------- ---------
Total liabilities and shareholders' equity $ 106,001 $ 105,713
========= =========
See accompanying notes to consolidated financial statements.
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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Interest and Dividend Income
Interest and fees on loans $ 1,761 $ 1,695 $ 3,527 $ 3,338
Federal funds sold 22 6 27 12
Interest and dividends on investment securities:
Taxable 136 120 261 249
Tax exempt 43 53 86 109
Other interest income - 2 1 3
-------- --------- --------- ---------
Total interest income 1,962 1,876 3,902 3,711
Interest Expense
Deposits 607 576 1,203 1,174
Short-term borrowings 3 11 12 15
Long-term borrowings 302 276 587 510
-------- --------- --------- ---------
Total interest expense 912 863 1,802 1,699
-------- --------- --------- ---------
Net Interest Income 1,050 1,013 2,100 2,012
Provision for loan losses - 9 6 18
-------- --------- --------- ---------
Net interest income after provision for loan losses 1,050 1,004 2,094 1,994
Non Interest Income
Service charges on deposit accounts 89 70 159 132
Other income 137 83 228 157
-------- --------- --------- ---------
Total non interest income 226 153 387 289
Non Interest Expense
Salaries and employee benefits 381 342 755 693
Premises and equipment 72 76 150 156
Other operating expense 231 228 420 423
-------- --------- --------- ---------
Total non interest expense 684 646 1,325 1,272
Income before income tax expense 592 511 1,156 1,011
Income tax expense 174 154 347 302
-------- --------- --------- ---------
Net Income $ 418 $ 357 $ 809 $ 709
======== ========= ========= =========
Average common shares outstanding 598,056 596,127 597,584 596,200
Basic earnings per common share 0.70 0.60 1.35 1.19
Diluted earnings per common share 0.69 0.59 1.34 1.18
Dividends per share of common stock, declared 0.31 0.28 0.61 0.55
See accompanying notes to consolidated financial statements.
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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Six Months Ended
June 30,
2000 1999
---- ----
Cash flows from operating activities
Net income $ 809 $ 709
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 57 61
Provision for loan losses 6 18
Net amortization (accretion) on securities 1 19
Changes in assets and liabilities:
Accrued interest receivable (15) (53)
Accrued interest payable (4) 10
Other assets (59) (316)
Other liabilities 57 308
--------- ---------
Net cash from operating activities 852 756
Cash flows from investing activities
Securities available for sale:
Purchases (2,080) (1,277)
Maturities, calls and principal payments 1,184 2,836
Securities held to maturity:
Maturities, calls and principal payments - 265
Net change in loans 1,230 (5,437)
Premises and equipment expenditures (36) (32)
--------- ---------
Net cash from investing activities 298 (3,645)
Cash flows from financing activities
Net change in deposits (128) (2,222)
Federal funds purchased (1,700) 1,050
Proceeds from long-term FHLB borrowings 2,700 4,000
Repayment of long-term FHLB borrowings (1,090) (588)
Proceeds from shares issued upon exercise of stock options 21 22
Dividends paid (359) (322)
--------- ---------
Net cash from financing activities (556) 1,940
--------- ---------
Net change in cash and cash equivalents 594 (949)
Cash and cash equivalents at beginning of year 3,151 3,321
--------- ---------
Cash and cash equivalents at June 30 $ 3,745 $ 2,372
========= =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 1,806 $ 1,688
Income taxes - federal $ 348 $ 301
See accompanying notes to consolidated financial statements.
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CAPITAL DIRECTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 418 $ 357 $ 809 $ 709
Other comprehensive income (loss),
net of tax
Unrealized holding gains (losses)
arising during period 13 84 (28) 71
Tax effects (4) (29) 10 (24)
------- ------- ------ ------
Other comprehensive income (loss) 9 55 (18) 47
------- ------- ------ ------
Comprehensive income $ 427 $ 412 $ 791 $ 756
======= ======= ====== ======
See accompanying notes to consolidated financial statements.
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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, 2000 and December 31,
1999, the results of operations for the three and six month periods ended
June 30, 2000 and 1999, and the cash flows for the six month periods ended
June 30, 2000 and 1999.
2. The results of operations for the six months ended June 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. 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,
2000, non-performing loans totaled $20,000 or .02% of total loans. This
represents a decrease of $318,000 from the $338,000 balance at December 31,
1999.
June 30, December 31,
Non-performing loans 2000 1999
-------------------- ---- ----
Non-accrual $ 20,000 $ 32,000
90 days or more past due - 306,000
Renegotiated - -
--------- --------
Total $ 20,000 $338,000
========= ========
Non-performing loans as a percent of:
Total loans .02% .38%
Allowance for loan losses 1.88% 32.04%
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Note 4. 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 addition or reductions to the allowance which have been
charged or credited to expense.
(Dollars in thousands) Six Twelve
Months Months
Ended Ended
June 30, December 31,
2000 1999
---- ----
Balance at beginning of period $ 1,055 $ 1,011
Charge-offs (10) (37)
Recoveries 12 33
-------- --------
Net (charge-offs) recoveries 2 (4)
Additions (reductions) to allowance
for loan losses 6 48
-------- --------
Balance at end of period $ 1,063 $ 1,055
======== ========
Average loans outstanding during the period $ 88,294 $ 86,397
======== ========
Loans outstanding at end of period $ 87,884 $ 89,112
======== ========
Allowance as a percent of:
Total loans at end of period 1.21% 1.18%
======== ========
Non-performing loans at end of period 5,315.00% 312.13%
======== ========
Net charge-offs as a percent of:
Average loans outstanding .00% .00%
======== ========
Allowance for loan losses (.19)% .38%
======== ========
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Note 5. Earnings per share
5. A reconciliation of basic and diluted earnings per share for the
three-month and six-month periods; ending June 30 follows:
(Dollars in thousands) Three months ended Six months ended
2000 1999 2000 1999
---- ---- ---- ----
Basic earnings per share
Net income $ 418 $ 357 $ 809 $ 709
Shares outstanding 598,056 596,127 597,584 596,200
Per share amount .70 .60 1.35 1.19
Diluted earnings per share
Net income $ 418 $ 357 $ 809 $ 709
Shares outstanding 598,056 596,127 597,584 596,200
Effect of dilutive securities-
Stock options 5,461 3,092 5,591 5,251
-------- -------- -------- --------
603,517 599,219 603,175 601,451
Per share amount .69 .59 1.34 1.18
Note 6. Stock Option Plan
6. 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.
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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, 1997 32,000 8,000 $ 15.38
Granted (4,000) 4,000 21.88 $ 2.17
Exercised - (200) 12.75
Forfeited 400 (400) 12.75
------------ ------------ ---------
Balance
December 31, 1997 28,400 11,400 17.80
Granted (4,400) 4,400 32.00 3.21
Exercised - (67) 18.00
Cancelled 66 (66) 18.00
Forfeited 867 (867) 24.19
------------ ------------ ---------
Balance
December 31, 1998 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
June 30, 2000 17,593 19,207 $ 29.75
============= ============ =========
For the options outstanding June 30, 2000, the range of exercise prices
was $12.75 to $41.50 per share with a weighted average remaining
contractual term of 7.82 years. At June 30, 2000, 7,401 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
six months ended June 30, 2000 and 1999. The pro forma effect may increase
in the future if more options are granted (in thousands, except per share
data).
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
Net income
As reported $ 809 $ 709
Pro forma 801 699
Basic and diluted income
per share
As reported basic $ 1.35 $ 1.19
Pro forma basic 1.34 1.17
As reported diluted 1.34 1.18
Pro forma diluted 1.33 1.16
The pro forma effects are computed with option pricing models using the
following weighted average assumptions as of the grant date.
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2000 1999
---- ----
Risk-free interest rate 6.76% 5.07%
Expected option life 5 years 5 years
Expected stock price volatility 6.42% 6.28%
Expected dividend yield 3.04% 3.37%
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 $106,001 at June 30, 2000. The .27% increase of $288 from
$105,713 at December 31, 1999 resulted in an increase in Federal funds
sold, which were $0 at year-end, and investment securities, which were
funded by a reduction in vault cash supplies and reduced loan demand.
Cash and cash equivalents have increased $594 or 18.85% in the six month
period from December 31, 1999 to June 30, 2000. This is a result of the
sale of excess fed funds while reducing the supply of vault cash and a
decline in loan demand.
Total outstanding loans have decreased $1,228 during the first six months
of 2000. This is a decrease of 1.38% from December 31, 1999. This decline
has been divided between the residential real estate portfolio as well as
the installment loan portfolio, while the commercial loan portfolio has
grown slightly. All new loans booked in 2000 have been held within the loan
portfolio.
The allowance for loan losses increased $8 or .76% during the six month
period ending June 30, 2000. At June 30, 2000 the allowance as a percent of
outstanding loans was 1.21% 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 June 30, 2000 compared to year-end 1999 decreased
slightly by $128 or .18%. This is consistent with a comparison of average
interest bearing deposits, which have also declined slightly, from $62,238
at June 30, 1999 to $62,057 at June 30, 2000.
Total shareholders' equity increased $447 or 3.78% in the first six months
of 2000. Net income of $809 and stock transactions from the exercise of
options of $21 have increased shareholders' equity, while net unrealized
losses on available for sale securities of $18 and dividends of $365
reduced shareholders' equity. Book value per share was $20.52 at June 30,
2000 compared to $19.82 at December 31, 1999.
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Item 2. Management's discussion and analysis of financial condition and
results of operations (continued)
Results of Operations (In thousands)
For the second quarter of 2000, net income was $418, basic earnings per
share was $.70, and diluted earnings per share was $.69, compared to $357,
$.60 and $.59 for the same period in 1999. During the six month period
ending June 30, 2000, net income totaled $809, basic earnings per share was
$1.35, and diluted earnings per share was $1.34. compared to $709, $1.19
and $1.18 for the same period in 1999. The following table illustrates the
change in net interest margin for the six months ended June 30, 2000 and
June 30, 1999.
2000 1999
---- ----
Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Loans (taxable) $ 88,117 $ 3,520 8.03% $ 84,045 $ 3,316 7.96%
Loans (non-taxable) 177 9 10.23% 942 33 7.06%
Taxable investment securities 7,865 262 6.70% 7,504 249 6.69%
Non-taxable investment securities 3,211 129 8.08% 4,379 165 7.60%
Federal funds sold 962 27 5.64% 517 12 4.68%
-------- -------- -------- --------
Total interest earning assets $100,332 $ 3,947 7.91% $ 97,387 $ 3,775 7.82%
Interest bearing demand deposits $ 11,159 $ 50 .90% $ 11,352 $ 57 1.01%
Savings deposits 18,590 262 2.83% 19,045 249 2.64%
Time deposits <$100,000 20,968 555 5.32% 20,409 563 5.56%
Time deposits $100,000 and more 11,340 336 5.96% 11,432 305 5.38%
Federal funds purchased 402 12 6.00% 629 15 4.81%
Other borrowings 19,984 587 5.91% 17,498 510 5.88%
-------- -------- -------- --------
Total interest bearing liabilities $ 82,443 $ 1,802 4.40% $ 80,365 $ 1,699 4.26%
Net Interest $ 2,145 3.51% $ 2,076 3.56%
Net Interest Margin 4.30% 4.30%
Earning assets are presented on a fully taxable equivalent basis.
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, which was
partially offset by changes due to interest rates.
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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) $ 162 $ 42 $ 204
Loans (non-taxable) (35) 11 (24)
Taxable investment securities 12 1 13
Non-taxable investment securities (46) 10 (36)
Federal funds sold 12 3 15
------- ------- -----
Total interest income $ 105 $ 67 $ 172
-------- -------- ------
Interest Bearing Liabilities
----------------------------
Interest bearing demand deposits $ (1) $ (6) $ (7)
Savings deposits (6) 19 13
Time deposits <$100,000 15 (23) (8)
Time deposits $100,000 and > (2) 33 31
Federal funds purchased (6) 3 (3)
Other borrowings 73 4 77
------- ------- -----
Total interest expense $ 73 $ 30 $ 103
-------- -------- ------
Net Interest Income $ 32 $ 37 $ 69
======== ======== ======
Earning assets are presented on a fully taxable equivalent basis.
The provision for loan losses was $0 during the second quarter of 2000
compared to $9 for the same period of 1999. For the six months ended June
30, the provision was $6 in 2000 compared to $18 in 1999. This decrease is
consistent with the decline in non-performing loans.
Non interest income increased $73 or 47.71% during the second quarter of
2000 when compared to the second 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 six months of 2000, which have enhanced earnings. For
the six months ended June 30, non interest income has increased $98 or
33.91% when compared to the similar period in 1999. This is a result of the
same factors affecting the second quarter increase.
Non interest expense increased $38 or 5.88% when comparing the second
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 small decline in depreciation and equipment repair expenses. For the six
months ended June 30, 2000 non interest expense increased $53 or 4.17%
compared to the same period in 1999. Salaries and benefits increased $62 or
8.95% as some vacant positions have been filled in addition to normal
salary increases. Decreases were realized in supplies, correspondent fees,
merchant processing, equipment repair and depreciation due to continued
efforts to control expenses.
The federal income tax provision for the second quarter of 2000 was $174,
up $20 for the same period in 1999. Year-to-date the income tax provision
has increased by $45 or 14.9%. This increase reflects a higher taxable
income for 2000.
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Item 2. Management's discussion and analysis of financial condition and
results of operations (continued)
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 $1,486,000 in
federal funds sold was maintained during the second 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 six 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 June 30, 2000 the securities available for sale were valued at
$10,529,000. 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 2000,
the results of the GAP analysis were within the Bank's policy guidelines.
At June 30, 2000, the percentage of rate sensitive assets to rate sensitive
liabilities within the one-year time horizon was 33%.
The following table shows the Corporation's GAP position as of June 30,
2000. The Corporation has a liability sensitive position of approximately
$44,954 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.
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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 $ 5,519 $ 6,558 $ 1,278 $ 1,392 $ 1,902 $ 16,649 $ 6,944 $ 8,452 $55,839 $ 87,884
Allowance for
loan losses - - - - - - - - - -1,063
Investments 1,602 417 588 1,021 1,013 4,641 4,112 2,047 793 11,593
Short-term
Investments 1,223 - - - - 1,223 - - - 1,223
Other non-
earning assets - - - - - - - - - 6,364
-------- ------- -------- -------- -------- -------- -------- -------- ------- --------
Total $ 8,344 $ 6,975 $ 1,866 $ 2,413 $ 2,915 $ 22,513 $ 11,056 $ 10,499 $56,632 $106,001
======== ======= ======== ======== ======== ======== ======== ======== ======= ========
Liabilities
Non interest
bearing
deposits $ 10,019 $ - $ - $ - $ - $ 10,019 $ - $ - $ - $ 10,019
Interest
bearing
deposits 38,537 5,085 4,352 3,804 2,446 54,224 6,465 1,047 147 61,883
Long-term
FHLB
borrowings - - 132 1,592 1,500 3,224 9,075 7,250 922 20,471
Other
liabilities - - - - - - - - - 1,353
Capital - - - - - - - - - 12,275
-------- -------- -------- -------- -------- -------- -------- ------- ------- --------
Total $ 48,556 $ 5,085 $ 4,484 $ 5,396 $ 3,946 $ 67,467 $ 15,540 $ 8,297 $ 1,069 $106,001
======== ======== ======== ======== ======== ======== ======== ======== ======= ========
GAP $-40,212 $ 1,890 $ -2,618 $ -2,983 $ -1,031 $-44,954 $ -4,484 $ 2,202 $55,563
Cumulative
GAP $-40,212 $-38,322 $-40,940 $-43,923 $-44,954 $-44,954 $-49,438 $-47,236 $ 8,327
GAP ratio 17% 137% 42% 45% 74% 33% 71% 127% 5298%
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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
$465,000 or 3.94% to $12,260,000 for the first six months of 2000. This
represents 11.57% of total assets. At June 30, 1999, the similar ratio of
shareholders' equity to total assets was 11.00%. Dividends declared per
common share increased by 10.91% to $.61 per share in 2000 compared to $.55
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 June 30, 2000, the Bank has a
"risk-based" total capital to asset ratio of 18.58%. The ratio exceeds the
requirements established by regulatory agencies as shown below.
Capital June 30, 2000
(Dollars in thousands) Risk-based Leverage
Actual amount $ 13,069 $ 12,188
Actual percentage 18.58% 11.52%
Required amount $ 5,627 $ 4,230
Required percentage 8.00% 4.00%
Excess amount $ 7,442 $ 7,958
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.
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,
2000.
Item 2. Changes in securities
During the six months ended June 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.
Item 3. Defaults upon senior securities
No defaults have occurred involving senior securities on the part of the
Registrant.
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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 six months ended June 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 13.
2. Reports on Form 8-K No reports on Form 8-K were filed for the
three months ended June 30, 2000.
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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, 2000 By: /s/ Timothy Gaylord
-------------- ---------------------------------
Timothy Gaylord
President
Date: August 9, 2000 By: /s/ Lois A. Toth
-------------- ------------------------------------
Lois A. Toth
. Treasurer
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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
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