SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 2001 Commission file number 33-20417
----------------- --------
Capital Directions, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2781737
- --------------------------- --------------------------------------------
(State of 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
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Securities registered pursuant to Section 12 (b) of the act: NONE
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Securities registered pursuant to Section 12 (g) of the act: NONE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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
--------------- ---------------
Indicate by check mark if disclosure of delinquent filer pursuant to item 405 of
Registration S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant estimates that as of February 5, 2002 the aggregate market value
of the voting stock held by non-affiliates of the registrant was approximately
$17,459,020. This is based on a market price of $38.00 per share for the
Registrant's stock as of that date.
As of February 5, 2002 the registrant had outstanding 595,956 shares of common
stock having a par value of $5 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the Year Ended December 31, 2001 (Form 10-K,
Part I, Part II, Part III, and Part IV)
PART I
Item 1. Business
Capital Directions, Inc. (the "Registrant") is a one-bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The
Registrant was incorporated on August 11, 1987 and formed for the purpose of
enabling Mason State Bank (the "Bank") to form a one-bank holding company and
engage in any other related activity allowed. Mason State Bank was consolidated
with Mason Bank on July 22, 1988, thereby causing Mason State Bank to become a
wholly-owned subsidiary of the Registrant.
Mason State Bank purchased Lakeside Insurance Services, Inc. in 1994 to take
advantage of the expanded insurance powers granted to banks in 1994. Lakeside is
licensed in Michigan to sell life, accident and health, multiple line property
and casualty insurance and variable annuity contracts.
The Registrant has no substantial assets except the investments in Mason State
Bank. The Registrant and its primary subsidiary, Mason State Bank, operate in
the banking industry, which accounts for substantially all of their assets,
revenues and operating income. Further discussion of the operations of the
Registrant and its subsidiaries is discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 2001 Annual
Report to the Shareholders, incorporated herein by reference. The Registrant's
primary competition is substantially the same as Mason State Bank's as discussed
below.
The Bank was organized in 1886 under the laws of Michigan and is subject to the
Michigan Banking Code of 1969. It is insured by the Bank Insurance Fund through
the Federal Deposit Insurance Corporation. The Bank is regulated by the Michigan
Office of Financial and Insurance Services and the Federal Deposit Insurance
Corporation. The Federal Reserve Board regulates the Registrant. The Bank's
Principal office is located at 322 South Jefferson Street, Mason, Michigan. It
operates branches at 661 North Cedar Street, Mason, Michigan and at 810 W.
Bellevue, Leslie, Michigan.
Banking services are provided to individuals, businesses, local, state and
federal governmental units and institutional customers located in Mason, Leslie
and the surrounding areas. Services include demand deposits, savings and time
deposits, collections, cash management, night depositories and personal,
installment, commercial and real estate loans. The Bank offers a credit card
program affiliated with the Visa and MasterCharge Inter-Bank charge card system.
The Bank maintains a correspondent relationship with several of the major banks
in the Detroit area and elsewhere, in order to provide for the clearance of
checks, the transfer of funds, the periodic purchase and sale of Federal funds,
and participation in large loans which would be beyond the Bank's legal lending
limit if made by the Bank alone.
The Bank has full and part-time employees (38 full-time equivalents) and owns
its main office and Cedar Street office. The facility in Leslie is operated
under a lease agreement. The Bank operates primarily within Ingham County.
Competing with the Bank in Ingham County are several other commercial banks and
financial institutions, some of which have significantly greater total resources
than the Bank.
2
Item 1. Business-Statistical Disclosures
I. Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
(A), (B) The following table sets forth average balances for major
categories of interest earning assets and interest bearing
liabilities, the interest earned (on a fully taxable
equivalent basis) or paid on such amounts, and average
interest rates earned or paid thereon.
3
2001 2000
---------------------------------- -------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ---- ------- -------- ----
(Dollars in thousands)
ASSETS
------
Loans, including fees(1) $ 86,284 $ 6,808 7.89% $ 87,270 $7,029 8.05%
Loans, non-taxable(2) 510 44 8.63 381 34 8.92
Taxable investment
securities 13,143 872 6.63 8,854 600 6.78
Non-taxable investment
securities(2) 3,077 241 7.83 3,109 252 8.11
Federal funds sold and
other 4,815 181 3.76 2,257 141 6.25
-------- -------- -------- ------
Total earning assets(2) 107,829 8,146 7.55% 101,871 8,056 7.91%
Cash and due from 2,490 2,570
banks
Other assets, net 3,243 2,739
-------- --------
Total non interest
earning assets 5,733 5,309
-------- --------
Total assets $113,562 $107,180
======== ========
LIABILITIES
-----------
Interest bearing
demand deposits $ 9,305 $ 56 0.60% $ 10,426 $ 83 0.80%
Savings deposits 18,911 393 2.08 18,963 553 2.92
Time deposits under
$100,000 19,631 1,040 5.30 20,559 1,148 5.58
Time deposits of
$100,000 or more 11,443 543 4.75 12,088 722 5.97
Federal funds purchased 7 1 6.73 206 13 6.31
Other borrowings 29,190 1,682 5.76 21,447 1,279 5.96
-------- ------- -------- ------
Total interest bearing
liabilities 88,487 3,715 4.20% 83,689 3,798 4.54%
------- ------
Demand deposits 10,171 9,842
Other liabilities 1,468 1,227
Shareholders' equity 13,436 12,422
-------- -------
Total non-interest
bearing liabilities and
equity 25,075 23,491
-------- -------
Total liabilities and
equity $113,562 $107,180
======== ========
Net interest income $ 4,431 $4,258
======= =======
Interest Spread 3.35% 3.37%
Net yield on interest
earning assets(2) 4.11% 4.18%
======= ====
(1) Average balances for loans include non-accrual loans. The inclusion
of non-accrual loans and fees does not have a material effect on either
the average balance or the average interest rate.
(2) Interest on non-taxable investment securities and non-taxable loans
is reflected on a fully tax equivalent basis using an effective tax
rate of 34%.
4
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Differential (continued)
(C) The following table summarizes the changes in interest income
(on a fully taxable equivalent basis) and interest expense
resulting from changes in volume and changes in rates:
(Dollars in thousands)
2001 Compared to 2000 2000 Compared to 1999
- ----------------------------------------------------------------------------------------------------------
Change due to: Volume(1) Rate(1) Total Volume(1) Rate(1) Total
Earnings assets
Loans $ (79) $ (142) $ (221) $ 122 $ 157 $ 279
Loans, nontaxable (2) 11 (1) 10 (23) 9 (14)
Taxable investment securities 285 (13) 272 88 9 97
Non tax investment securities (2) (3) (8) (11) (60) 12 (48)
Federal funds sold and other 113 (73) 40 87 12 99
------ ------- ------ ----- ----- ------
Total interest income(2) $ 327 $ (237) $ 90 $ 214 $ 199 $ 413
Interest bearing liabilities:
Interest bearing demand deposits $ (8) $ (19) $ (27) $ (11) $ (22) $ (33)
Savings deposits (2) (158) (160) (11) 42 31
Time deposits under 100,000 (51) (57) (108) 21 16 37
Time deposits $100,000 or more (37) (142) (179) 28 91 119
Federal funds purchased (13) - (13) (13) 6 (7)
Other borrowings 448 (44) 404 191 20 211
------ ------ ------ ----- ----- ------
Total interest expense $ 337 $ (420) $ (83) $ 205 $ 153 $ 358
Net interest income(2) $ (10) $ 183 $ 173 $ 9 $ 46 $ 55
- --------------------------------------------------------------------
(1) The change in interest due to both volume and rate has
been allocated to volume and rate in proportion to the
relationship of the absolute dollar amounts of the change
in each.
(2) Interest on tax-exempt investment securities and loans is
based on a fully taxable equivalent basis using an
effective tax rate of 34%.
II. Investment Portfolio
(A) A table of carrying values of the investment portfolio as of
December 31, 2001 and 2000 is set forth in Note 3 on pages 18
and 19 of the 2001 Annual Report to Shareholders. Such
information is incorporated herein by reference.
(B) The following table shows the relative maturities and weighted
yields of investment securities at December 31, 2001: (dollars
in thousands)
Available-For Sale
------------------
1 Year or less 1 Year - 5 Years 5 Years-10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Government $ 502 6.66% $ - 0.00% $ - 0.00% $ - 0.00%
U.S. Government agencies (1) 1,019 6.30 4,057 6.52 - 0.00 325 6.89
State and political
subdivisions (2) 203 8.28 1,517 6.94 1,123 5.98 339 5.83
Corporate securities (1) 1,550 7.25 1,565 7.21 - 0.00 - 0.00
----- ------ -------- -----
Total $3,274 6.93% $7,139 6.76% $ 1,123 5.98% $ 664 6.35%
====== ====== ======== =====
(1) Mortgage Backed securities and Corporate securities, as
reflected in the above schedules consider anticipated
prepayments and calls.
(2) Weighted average yield is adjusted to a taxable equivalent basis
using a federal income tax rate of 34 percent.
5
II. Investment Portfolio (continued)
(C) The Registrant held no investment securities of a single issuer,
except U.S. Government Agency securities, in an amount greater
than ten percent of shareholders' equity as of December 31, 2001.
III. Loan Portfolio
(A) A table of loans outstanding as of December 31, 2001 and 2000 is
set forth in Note 4 on page 19 of the 2001 Annual Report to
Shareholders. Such information is incorporated herein by
reference.
The loan portfolio is systematically reviewed and the results
reported to the Board of Directors of the Registrant. The purpose
of these reviews is to assist in assuring proper loan
documentation, to provide for the early identification of
potential problem loans and to help ensure the adequacy of the
allowance for loan losses.
(B) The following table sets forth the remaining maturity of loans
outstanding (excluding real estate mortgages, installment and
lease financing) at December 31, 2001, according to scheduled
payments of principal (in thousands) and considering the banks
"rollover policy."(1)
(In thousands)
1 Year 1 Year - After
or less 5 Years 5 Years Total
------- ------- ------- -----
Commercial and
agricultural $ 1,633 $ 1,681 $ 1,874 $ 5,188
======= ======= ======== ========
The following table sets forth commercial and agricultural loans
due after one year, which have predetermined interest rates and/or
adjustable interest rates at December 31, 2001.
(In thousands)
Fixed Adjustable
Rate Rate Total
------ ---------- --------
Due after one but within five
years $ 1,253 $ 428 $ 1,681
Due after five years 807 1,067 1,874
------- -------- -------
Total $ 2,060 $ 1,495 $ 3,555
======= ======== =======
(1) The "rollover policy" is to generally write terms of
these loans for a shorter time than the expected
payments. The purpose of this is to re-evaluate the term
and credit of the respective borrower. We estimate that
this happens on approximately 80% of these borrowings
and is reflected as such in this schedule.
(C). Risk Elements
(1). Nonaccrual, Past Due, Impaired and Restructured Loans.
A table and discussion of nonaccrual, past due, impaired
and restructured loans for the years ended December 31,
2001 and 2000 is in "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" on page 9 under Provision and allowance for
loan losses, Note 1 under "Loans" and "Allowance for
Loan Losses" on pages 17 and 18 and in Note 5 "Allowance
For Loan Losses" on page 19 in the 2001 Annual Report to
Shareholders. Such information is incorporated herein by
reference.
6
III. Loan Portfolio (continued)
Gross interest income that would have been recorded in
2001 on nonaccrual loans if the loans had been current
in accordance with their original terms and outstanding
throughout the period or since origination was $1,581.
No interest income was recognized on these loans during
2001.
(2). Potential Problem Loans
There are no material loans that are current as to which
management has serious doubts as to the ability of the
borrower to comply with the loan repayment terms, or
which are expected to need adjustments in their
repayment terms, or which are believed to require
additional reserves in the allowance for loan losses.
(3). Foreign Outstandings
There were no foreign outstandings as of December 31,
2001.
(4). Loan Concentrations
There were no concentrations of loans exceeding 10% of
total loans that have not been already disclosed as a
category at December 31, 2001.
(D). Other Interest Bearing Assets
As of December 31, 2001, there were no other interest
bearing assets that would be required to be disclosed
under Item III, Parts (C) (1) or (C) (2) of the loan
portfolio listing if such assets were loans other than
$117,000 held as other real estate.
7
IV. Summary of Loan Loss Experience
(A). The following table sets forth loan allowance balances and
summarizes changes in the allowance for loan losses for each
of the three years ended December 31.
Analysis of the Allowance For Loan Losses
(Dollars in thousands) 2001 2000 1999
---- ---- ----
Balance, beginning of period $ 1,053 $ 1,055 $ 1,011
Loans charged-off
Commercial and agricultural (3) (15) -
Real estate-construction - - -
Real estate-mortgages (16) - -
Lease financing - - -
Installment and others (17) (12) (37)
------- -------- ----------
Total (36) (27) (37)
Recoveries of loans charged-off
Commercial and agricultural 15 - -
Real estate-construction - - -
Real estate-mortgages - - -
Lease financing - - -
Installment and others 16 19 33
-------- -------- ---------
Total 31 19 33
-------- -------- ---------
Net charge-offs (5) (8) (4)
Additions charged
to operations - 6 48
-------- -------- ---------
Balance at end of period $ 1,048 $ 1,053 $ 1,055
======== ======== ========
Average gross loans outstanding $ 86,794 $ 87,651 $ 86,397
======== ======== ========
Ratio of net charge-offs
during the period to average
gross loans outstanding
during the period 0.01% 0.01% 0.00%
========= ======== ========
Further discussion of the provision and allowance for loan losses as
well as non-performing and impaired loans is presented in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on page 9, Note 1 on pages 17 and 18 and Note 5 on page 19
in the 2001 Annual Report to the Shareholders, incorporated herein by
reference.
8
IV. Summary of Loan Loss Experience (continued)
(B) The following table presents an allocation for loan losses
to the various loan categories at December 31:
2001 2000
% of % of
(Dollars in thousands) Allowance Loans to Allowance Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
Commercial and agricultural $ 242 5.59% $ 203 7.05%
Real estate-mortgages 546 91.97 368 88.64
Installment and other 41 2.44 36 4.31
Unallocated 219 N/A 446 N/A
------- ------ ------- -------
Total $ 1,048 100.00% $ 1,053 100.00%
======= ====== ======= =======
Mason State Bank is committed to the maintenance of an allowance
for loan losses in amounts sufficient to absorb loan and lease
losses inherent in the loan portfolio. To assure the adequacy of
balances and the resulting provision allocations, measurements
against historical performance and current analyses of asset
quality are undertaken on a periodic basis with consideration for
qualitative factors. These evaluations support the budgeted
allowance provisions and the traditional philosophy of accounting
for losses as they are recognized.
On a predetermined basis, a Loan Loss Allowance Model (LLAM) is
completed quarterly for the Bank. The results of the LLAM provide
a consistent management tool for quantifying the amount of risk in
the loan portfolio. This LLAM computes a suggested allowance
balance to be compared to the actual allowance for loan losses.
The difference between the suggested and actual allowance is
monitored and maintained at an amount considered reasonable to
provide for potential losses inherent in the portfolio.
To determine the suggested allowance balance, two tests are
applied to the various loan categories. The test with the most
conservative (greatest) allowance allocation is selected for each
category. The two tests are then combined with a separate
qualitative factor spread against all loan categories.
The first test includes establishment of a minimum allocation
percentage for each loan (primarily commercial) based upon its
loan grade. The second test involves computing the actual loss
experience over the last five years for each of the loan
categories (primarily consumer and residential real estate loans).
The factor applied to the current outstanding loan balances of
these loan categories is equal to at least the five-year average
of net charge-offs to average loans for the appropriate loan
portfolio.
Economic conditions or other factors may warrant a qualitative
factor be applied to all loan categories. Management declared that
such a factor be instituted for 2001 and 2000. A review of the
regional trends show insured financial institutions experienced
increasing levels of past due and non-accrual loans relative to
the prior five year average. The factor applied to current loan
outstandings reflects the net percentage change in the past due
and non-accruing financial institution experience applied to the
Mason State Bank factor.
The allowance allocations above were deemed by management to be
amounts reasonably necessary to provide for the inherent losses in
the various loan categories as of December 31, 2001 and 2000.
9
V. Deposits
The following table sets forth average deposit balances and the
weighted average rate paid for each of the two years ended December 31:
2001 2000
(Dollars in thousands) Average Average
Balance Rate Balance Rate
------- ---- ------- ----
Non interest-bearing demand deposits $ 10,171 $ 9,842
Interest-bearing demand deposits 9,305 0.60% 10,426 0.80%
Savings deposits 18,911 2.08 18,963 2.92
Time deposits under $100,000 19,631 5.30 20,559 5.58
Time deposits of $100,000 or more 11,443 4.75 12,088 5.97
-------- -------
Total $ 69,461 2.93% $71,878 3.49%
======== =======
The following table summarizes time deposits in amounts of $100,000 or
more by time remaining until maturity as of December 31, 2001:
(In thousands)
Three months or less $ 6,996
Over three months through six months 2,868
Over six months through one year 1,308
Over one year 606
--------
Total $ 11,778
========
As of December 31, 2001 the registrant had no foreign deposits.
VI. Return on Equity and Assets
The following table presents the ratios for the year ended December 31:
2001 2000
---- ----
Net income to average total assets 1.53% 1.54%
Net income to average shareholders' equity 12.94 13.28
Cash dividend payout ratio per share 48.80 46.01
Average shareholders' equity to average total assets 11.83 11.59
VII. Short Term Borrowings -- Not applicable
Item 2. Properties
The Bank owns the land on which the Main Office is located. The parcel
measures 85' by 170' and bears the municipal address of 322 South
Jefferson Street, Mason, Michigan. The permanent building, also owned
by Mason State Bank, has approximately 6,800 square feet and includes
banking facilities, storage and personnel lounge areas. This brick
structure was built in the mid 1800's and has undergone several
remodelings, the most recent of which was completed in 2001. The
building is in generally good condition. A parking area with spaces to
accommodate 20 vehicles occupies part of the property; also on site are
three drive-in banking stations which operate via remote monitors
located within the banking facility.
The Bank also owns the land used as a Branch office. The land measures
368' by 297' and bears the municipal address of 661 North Cedar Street,
Mason, Michigan. The permanent building, built in the 1960's, also
owned by Mason State Bank, measures approximately 2,400 square feet,
including banking facilities, storage and personnel lounge areas. This
building is also in good
10
Item 2. Properties (continued)
condition. A parking area with spaces to accommodate 24 vehicles
occupies part of the property; part is occupied by 4 drive-in banking
stations.
In October 1998, the Bank established an in-store branch located within
the Felpausch Food Center, 810 W. Bellevue Street, Leslie, Michigan.
The Bank entered into a lease arrangement and occupies 709 square feet
of the southeast corner of the store. Prior to occupancy, this space
was renovated to provide full service banking accommodations. Customer
parking is readily available and maintained by Felpausch Food Center.
The Registrant operates its business at the same address as Mason State
Bank's main office. As of February 6, 2002, the Registrant owned no
properties.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Registrant
or its subsidiaries is a party or to 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Additional Item -- Executive Officers
Executive officers of the Registrant are appointed annually by the
Board of Directors at the meeting of Directors following the Annual
Meeting of Shareholders. There are no family relationships among these
officers and/or Directors of the Registrant or any arrangement or
understanding between any officer and any other person pursuant to
which the officer was elected.
The following sets forth certain information with respect to the
Registrant's Executive Officers and Directors as of December 31, 2001.
Position With First Elected as an
Name (Age) Registrant Officer of the Registrant
---------- ------------- --------------------------
George A. Sullivan (69) Chairman 1988
Gerald W. Ambrose (52) Vice Chairman 1994
Timothy P. Gaylord (47) President and C.E.O. 1995
Douglas W. Dancer (61) Secretary 1990
Lois A. Toth (51) Treasurer 1998
Mr. Sullivan is a Director of the Registrant and Chairman of the Board
of Directors of Mason State Bank.
Mr. Ambrose is a Director of the Registrant and Vice Chairman of the
Board of Directors of Mason State Bank.
Mr. Gaylord is a Director of the Registrant and President and Chief
Executive Officer of Mason State Bank.
Mr. Dancer is a Director of the Registrant and Secretary of the Board
of Directors of Mason State Bank.
Ms. Toth is Vice President, Controller and Cashier of Mason State Bank.
11
PART II
I. The information required by this item appears in the Capital
Directions, Inc. Annual Report to Shareholders for the year ended
December 31, 2001, and is incorporated herein by reference, as
follows:
Pages in 2001
Annual Report
-------------
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 4
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 7-11
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk Not required as
Registrant meets
requirements to be
a small business filer
Item 8. Financial Statements and Supplementary Data 12-24
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure None
12
PART III
Item 10. Directors and Executive Officers of the Registrant as of December 31,
2001
Principal Occupation For Amount and Nature
Last Five Years Director of Beneficial Percent
Name Age Or More Since (1) Ownership (2) of Class
- ---- --- ------- --------- ------------- --------
Gerald W. Ambrose 52 County Controller for the 1990 1,011 (3)
County of Ingham; Vice
Chairman of the Board,
Mason State Bank and the
Company
Douglas W. Dancer 61 Partner, Nu-Horizons, Inc., 1986 19,826 3.32
Realtor, Vision Real Estate;
Former President, Dancer's Inc.
Department Stores; Secretary
of the Board, Mason State
Bank and the Company
Timothy P. Gaylord 47 President & Chief Executive 1995 7,994 1.34
Officer of Mason State Bank
and the Company
Paula J. Johnson 55 Realtor, Vision Real Estate and 1996 350 (3)
Developer, PAL, LLC i.e.: Vision
Village Condominiums
James W. Leasure 51 Owner, Showtime, Inc. and 2000 7,946 1.33
Paul's Marathon, Inc.
Marvin B. Oesterle 49 Partner, Golden Acres Farms 1981 3,934 (3)
and Oesterle Brothers
Seed Corn
George A. Sullivan 69 Attorney; Chairman of the 1975 2,120 (3)
Board, Mason State Bank and
the Company
Seven directors as a group 43,181 7.24
(1) Includes service as a director of the Company's wholly-owned
subsidiary, Mason State Bank (the "Bank"). The Company was organized in
1988 to act, inter alia, as a holding company for Mason State Bank, and
the Bank's directors became directors of the Company.
(2) Includes shares owned by or jointly with spouse, or minor child, or
other relative residing in same household, or as trustee.
(3) Less than one percent.
Reference is made to Additional Item -- Executive Officers under Part I, Item 4,
of this Form 10-K report on page 11.
13
Part III (continued)
Item 11. Executive Compensation
Each director of the Company is entitled to receive an annual retainer of
$7,899. In lieu of payment of director fees, certain directors have elected
to participate in a deferred compensation plan adopted in 1986. The plan
was closed to new participants May 18, 1996. Douglas W. Dancer, Marvin B.
Oesterle, and George A. Sullivan elected to participate in the plan which
provides for retirement and death benefits to be paid to the participating
directors or their beneficiaries over fifteen years. Deferred director fees
are used to purchase life insurance policies of which the Bank is the owner
and beneficiary. These life insurance policies are structured to fully fund
the Bank's obligation under the terms of the plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation paid by the Company and its
subsidiaries during the fiscal year ended December 31, 2001 to the
Company's Chief Executive Officer. There were no executive officers, other
than the CEO, whose combined salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
Name and All Other
Principal Position Year Salary ($)(1) Bonus ($) Options (#)(2) Compensation ($) (3)
- ------------------ ---- ------------- --------- --------------- --------------------
Timothy P. Gaylord 2001 $ 127,514 $ 23,121 2,000 $ 15,355
President and CEO 2000 $ 121,240 $ 22,000 2,000 $ 11,603
1999 $ 114,509 $ 20,000 2,000 $ 8,300
(1) Includes director's fees of $7,595 for 2001; $7,303 for 2000; and
$7,022 for 1999.
(2) The amounts shown represent the number of shares covered by stock
options granted under the Capital Directions, Inc. Incentive Stock
Option Plan as more fully described in the Option Grants in Last Fiscal
Year table set forth on the following page.
(3) "All Other Compensation" is comprised of the following items: The Bank
is accustomed to awarding a longevity bonus to all employees based on
their salary and length of service at five year increments. Mr. Gaylord
received an award of $1,196 for ten years of service in 2001. The Bank
entered into a lease agreement on a vehicle for Mr. Gaylord's use. The
income benefit to Mr. Gaylord was $4,388 for 2001 and $2,628 for 2000.
A contribution by the Bank for Mr. Gaylord's benefit to the Bank's
401(k) Plan for $9,771 for 2001; $8,975 for 2000; and $8,300 for 1999.
14
Part III (continued)
The following table presents information about stock options granted to the
named executive officer during 2001 under the Capital Directions, Inc.
Incentive Stock Option Plan (the "Stock Option Plan").
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term (2)
Options Employees Price Expiration
Name Granted (#) (1) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- --------------- -------------- ------- ---- ----------------
Timothy P. Gaylord 2,000 50.00 40.00 2/15/11 50,312 127,499
(1) The amounts shown are shares of the Company's Common Stock
covered by options granted under the Stock Option Plan. The
vesting of Stock Options does not start until two years from the
date of grant, February 15, 2001. The options vest over 3 years,
with one-third of the covered shares becoming part of the
exercisable portion each of the three years.
(2) The potential realizable value is reported net of the option
exercise price, but before income taxes associated with
exercise. These amounts represent assumed annual compounded
rates of appreciation of five percent and ten percent from the
date of grant to the end of the option. Actual gains, if any, on
stock option exercises are dependent on the future performance
of the Company's Common Stock, overall stock market conditions,
and the optionees' continued employment through the vesting
period. The amounts reflected in this table may not necessarily
be achieved.
The following table presents the number of shares covered by, and the value
of, unexercised options held by the named executive officer at December 31,
2001. Nine hundred (900) options were exercised by the named executive
officer during 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities Underlying Unexercised In-the-
Unexercised Options Money Options
Shares at FY-End (#) (1) at FY-End ($) (2)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized $ Unexercisable Unexercisable
---- ------------ ---------- ------------- -------------
Timothy P. Gaylord 900 24,003 6,001/5,999 90,443/4,847
(1) On March 18, 1999, the Company's Board of Directors, with the
consent of each grantee, voted to rescind all outstanding SARs,
which had been previously granted under the Company's Incentive
Stock Option Plan.
(2) The value shown is based upon the market bid price at December
31, 2001 of $39.42 net of the option exercise price.
15
Part III (continued)
EMPLOYMENT AGREEMENT
The Company has entered into an agreement with Mr. Gaylord relating to
his employment by the Company and the Bank. This agreement is
summarized below. This summary is not intended to be complete and is
qualified in its entirety by reference to the agreement.
The agreement among Mr. Gaylord, the Company, and the Bank (the
"Agreement") provides that Mr. Gaylord will be employed by the Company
and the Bank as their President and Chief Executive Officer. The
Agreement was automatically renewed in 2001 for a one-year period
ending September 30, 2002 and is subject to automatic renewals of
one-year periods unless terminated in accordance with the Agreement.
The Agreement provided an annual salary rate in 1995 of $85,000,
subject to adjustment by the Board of Directors in subsequent years
during the term of the Agreement. During 2001 Mr. Gaylord's salary was
$119,919. Mr. Gaylord is also entitled to customary employee benefits
and perquisites. The Agreement provides that in the event of a change
in control of the Company or the Bank, if Mr. Gaylord's employment is
involuntarily terminated, or if Mr. Gaylord's status and compensation
are reduced without cause within one year of the change in control, Mr.
Gaylord shall be entitled to payment of an amount equal to his annual
salary. The Agreement provides that the Company and the Bank may
terminate Mr. Gaylord's employment at any time for cause without
further obligation to compensate Mr. Gaylord. The Agreement broadly
defines cause to generally include, among other things, misfeasance,
malfeasance, and nonfeasance of Mr. Gaylord's duties and breach of the
Agreement. The Agreement further provides that Mr. Gaylord shall not,
for a period of one year after Mr. Gaylord's last day of employment,
provide financial services or otherwise compete with the business of
the Company and the Bank in the City of Mason, Michigan and a three
mile radius surrounding it. Further, Mr. Gaylord shall not during that
one year period solicit customers of the Bank and its affiliates or
solicit for hire any then current Bank or Company employees or contact
them for the purpose of inducing them to leave the Bank or Company. The
Agreement also requires Mr. Gaylord to maintain the confidentiality of
certain information and trade secrets of the Company and the Bank
following the termination of his employment.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of March 1,
2002, as to the Common Stock beneficially owned by each person known by
the Company to be the beneficial owner of more than five percent (5%)
of the Common Stock:
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership of Class
-------------- ------------------- ----------------------- --------
Common Stock, June M. Oesterle Trust 54,586 (1) 9.16%
$5 par value Lyle M. Oesterle Trust
1975 Okemos Road
Mason, MI 48854
Common Stock, Colin J. Fingerle Trust 37,343 6.27%
$5 par value 2505 Londonderry Road
Ann Arbor, MI 48104
(1) Total of shares owned by both the June M. Oesterle Trust of
which June M. Oesterle is the sole Trustee and the Lyle M.
Oesterle Trust of which Lyle M. Oesterle, spouse of June M.
Oesterle, is sole Trustee.
16
Part III (continued)
In addition, reference is made to Directors -- under Part III, Item 10,
of this Form 10-K report on page 13.
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Company and their associates were
customers of, and had transactions with, subsidiaries of the Company in
the ordinary course of business during 2001. All loans and commitments
included in such transactions were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features.
The information appearing in Note 4 on page 19 of the Notes to
Consolidated Financial Statements of the 2001 Annual Report to
Shareholders is incorporated by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a). The following documents are filed as part of this report:
1. The following consolidated financial statements of Capital
Directions, Inc. included in the 2001 Annual Report to
Shareholders for the year ended December 31, 2001, are
incorporated herein by reference in Item 8:
Page in 2001
Annual Report
-------------
Consolidated balance sheets --
December 31, 2001 and 2000 13
Consolidated statements of income for the years
ended December 31, 2001, 2000 and 1999 14
Consolidated statements of cash flows for the years
ended December 31, 2001, 2000 and 1999 15
Consolidated statements of changes in shareholders'
equity for the years ended December 31, 2001,
2000 and 1999 16
Notes to consolidated financial statements 17-24
Report of Independent Auditors 12
2. Financial Statement Schedules
Not applicable
3. Exhibits
17
PART IV -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
(3a) Articles of Incorporation and (3b) Bylaws (previously
filed as Exhibits included in Capital Directions, Inc.
Registration Statement Amendment No. 1 to Form S-4, No.
33-20417, Dated March 17, 1988).
(10) Material Contracts
(a) Incentive Compensation Plans (previously
filed as Exhibits included in Capital
Directions, Inc.'s 1988 10-K report dated
March 29, 1989 and the 1993 10-K report dated
March 29, 1994).
(b) Directors Deferred Compensation Plans
(previously filed as Exhibits included in
Capital Directions, Inc.'s 1988 10-K report
dated March 29, 1989).
(c) Supplementary Executive Retirement Plan
(previously filed as Exhibits included in
Capital Directions, Inc.'s 1988 10-K report
dated March 29, 1989).
(13) Annual Report to Shareholders for the year ended
December 31, 2001 (filed herewith).
(22) Subsidiaries of registrant (previously filed as
Exhibits included in Capital Directions, Inc.'s 1988
10-K report dated March 29, 1989)
(23) Consents of experts. Consent of Crowe, Chizek and
Company LLP.
(b). Reports on Form 8-K
Form 8-K was filed on October 1, 2001 relating to the
implementation of a stock repurchase program.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on March 25, 2002.
CAPITAL DIRECTIONS, INC.
/s/ Timothy P. Gaylord Timothy P. Gaylord
- ---------------------------------- (President and Chief Executive Officer)
/s/ Lois A. Toth Lois A. Toth
- ---------------------------------- (Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed by the following persons in the capacities indicated on
March 25, 2002.
/s/ George A. Sullivan George A. Sullivan
- ---------------------------------- Chairman of Board of Directors
/s/ Gerald W. Ambrose Gerald W. Ambrose
- ---------------------------------- Vice Chairman of Board of Directors
/s/ Douglas W. Dancer Douglas W. Dancer
- ---------------------------------- Secretary of Board of Directors
/s/ Timothy P. Gaylord Timothy P. Gaylord
- ---------------------------------- President and Chief Executive Officer
/s/ Marvin B. Oesterle Marvin B. Oesterle
- ---------------------------------- Director
/s/ Paula Johnson Paula Johnson
- ---------------------------------- Director
/s/ James W. Leasure James W. Leasure
- ---------------------------------- Director
19
Index to Exhibits
The following exhibits are filed or incorporated by reference as part
of this report:
3(A) Articles of Incorporation of the Registrant as currently in
effect and any amendments thereto (Incorporated herein by
reference to Exhibit 3(A) of the Registrants' Form S-4
Registration Statement dated March 17, 1988 No. 33-20417).
3(B) Bylaws of the Registrant as currently in effect and any
amendments thereto (Incorporated herein by reference to Exhibit
3(B) of the Registrants' Form S-4 Registration Statement dated
March 17, 1988 No. 33-20417).
10(A) Incentive Compensation Plans (Incorporated herein by reference
to Exhibit 10(A) to Registrants' Report on Form 10-K for the
year ended December 31, 1988 and December 31, 1993 [1988 and
1993 10-K Reports]).
10(B) Directors Deferred Compensation Plan (Incorporated herein by
reference to Exhibit 10(B) to Registrants' Report on Form 10-K
for the year ended December 31, 1988 [1988 10-K Report]).
10(C) Supplementary Executive Retirement Plan (Incorporated herein by
reference to Exhibit 10(C) to Registrants' Report on Form 10-K
for the year ended December 31, 1988 [1988 10-K Report]).
13 Annual Report to Shareholders for the year ended December 31,
2001 (filed herewith).
22 List of Subsidiaries (Incorporated herein by reference to
Exhibit 22 to Registrants' Report on Form 10-K for the year
ended December 31, 1988 [1988 10-K Report]).
23 Consents of experts. Consent of Crowe, Chizek and Company LLP.
20