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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD
FROM _______________ TO _______________
Commission File Number 333-56682
CAPITAL BANCORP, INC.
------------------------------------------------------
(Exact Name of Registrant As Specified in its Charter)
Tennessee 62-1848668
- ------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
1820 West End Avenue, Nashville, TN 37203
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(615) 327-9000
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark 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 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock outstanding: 1,565,971 shares at May 9, 2003
1
CAPITAL BANCORP, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the Company and its
subsidiaries are as follows:
Consolidated Balance Sheets - March 31, 2003 and December 31,
2002.
Consolidated Statements of Earnings - For the three months
ended March 31, 2003 and 2002.
Consolidated Statements of Comprehensive Earnings - For the
three months ended March 31, 2003 and 2002.
Consolidated Statements of Cash Flows - For the three months
ended March 31, 2003 and 2002.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk*
* Certain of the disclosures required by Item 3 are
incorporated by reference to Management's Discussion
and Analysis of Financial Condition and Results of
Operations
Item 4. Controls and Procedures
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
2
CAPITAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
(In Thousands)
-----------------------------
March 31, December 31,
2003 2002
--------- ------------
ASSETS
Loans, net of allowance for possible loan losses of $2,623,000
and $2,535,000, respectively $178,057 173,385
Securities available-for-sale, at market (amortized cost $50,194,000
and $44,330,000, respectively) 50,897 45,144
Loans held for sale 2,876 5,769
Interest-bearing deposits in financial institutions 251 251
Federal funds sold 1,960 --
-------- -------
Total earning assets 234,041 224,549
-------- -------
Cash and due from banks 5,606 5,160
Premises and equipment, net of accumulated depreciation 4,994 5,060
Accrued interest receivable 1,149 1,107
Deferred income taxes 588 546
Other real estate 178 505
Other assets 2,182 2,478
-------- -------
Total assets $248,738 239,405
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $200,786 189,895
Securities sold under repurchase agreements 2,070 3,222
Accrued interest and other liabilities 1,142 1,249
Advances from Federal Home Loan Bank 25,685 25,787
Federal funds purchased -- 620
-------- -------
Total liabilities 229,683 220,773
-------- -------
Stockholders' equity:
Preferred stock, no par value, authorized 20,000,000 shares,
no shares issued -- --
Common stock, par value $4 per share, authorized 20,000,000
shares, 1,565,971 and 1,565,271 shares issued and outstanding,
respectively 6,264 6,261
Additional paid-in capital 5,915 5,909
Retained earnings 6,442 5,960
Net unrealized gains on available-for-sale securities, net of
taxes of $269,000 and $311,000, respectively 434 502
-------- -------
Total stockholders' equity 19,055 18,632
-------- -------
COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' equity $248,738 239,405
======== =======
See accompanying notes to consolidated financial statements (unaudited).
3
CAPITAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
---------- ---------
(Dollars in Thousands,
Except Per Share Amount)
Interest income:
Interest and fees on loans $ 3,180 2,776
Interest and dividends on securities:
Taxable securities 354 272
Exempt from Federal income taxes 30 13
Interest on loans held for sale 16 23
Interest on Federal funds sold 6 13
Interest on interest-bearing deposits in financial institutions 5 5
---------- ---------
Total interest income 3,591 3,102
---------- ---------
Interest expense:
Interest on savings accounts 3 3
Interest on negotiable order of withdrawal accounts 8 13
Interest on money market accounts 191 289
Interest on certificates of deposits over $100,000 488 348
Interest on certificates of deposits - other 339 358
Interest on securities sold under repurchase agreements 10 12
Interest on advances from Federal Home Loan Bank 277 153
---------- ---------
Total interest expense 1,316 1,176
---------- ---------
Net interest income before provision for possible loan losses 2,275 1,926
Provision for possible loan losses 272 217
---------- ---------
Net interest income after provision for possible loan losses 2,003 1,709
Non-interest income:
Service charges on deposit accounts 254 214
Other fees and commissions 76 34
Gain on sales of loans 350 84
---------- ---------
Total non-interest income 680 332
---------- ---------
Non-interest expense:
Employee salaries and benefits 1,097 887
Occupancy expenses 191 186
Furniture and equipment expenses 102 89
Data processing expense 56 43
Legal fees and expenses 61 30
Professional fees 47 25
FDIC insurance and state banking fees 20 17
Other operating expenses 322 283
Loss on other assets 21 --
Loss on sale of other real estate 4 19
---------- ---------
Total non-interest expense 1,921 1,579
---------- ---------
Earnings before income taxes 762 462
Income taxes 280 175
---------- ---------
Net earnings $ 482 287
========== =========
Weighted average number of shares outstanding 1,565,870 1,565,271
========== =========
Basic earnings per common share $ .31 .18
========== =========
Diluted earnings per common share $ .29 .18
========== =========
See accompanying notes to consolidated financial statements (unaudited).
4
CAPITAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
(In Thousands)
----------------------
2003 2002
----- ----
Net earnings $ 482 287
----- ----
Other comprehensive losses, net of tax:
Unrealized losses on available-for-sale securities arising during
period, net of tax benefits of $42,000 and $64,000 respectively (68) (104)
----- ----
Other comprehensive losses (68) (104)
----- ----
Comprehensive earnings $ 414 183
===== ====
See accompanying notes to consolidated financial statements (unaudited).
5
CAPITAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(In Thousands)
----------------------------
2003 2002
-------- -------
Cash flows from operating activities:
Interest received $ 3,682 2,995
Fees received 392 248
Interest paid (1,362) (1,176)
Cash paid to suppliers and employees (1,858) (1,307)
Proceeds from loan sales 21,675 7,762
Originations of loans held for sale (18,432) (4,671)
Income taxes paid (57) (136)
-------- -------
Net cash provided by operating activities 4,040 3,715
-------- -------
Cash flows from investing activities:
Purchase of available-for-sale securities (10,318) (253)
Proceeds from sales of other real estate 327 717
Proceeds from maturities of available-for-sale securities 4,321 1,296
Loans made to customers, net of repayments (4,944) (8,661)
Purchase of premises and equipment (42) (4)
Increase in interest-bearing deposits in financial institutions -- (214)
Expenditures on other real estate (4) --
-------- -------
Net cash used in investing activities (10,660) (7,119)
-------- -------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing, savings and
NOW deposit accounts 8,455 (3,339)
Net increase in time deposits 2,436 9,340
Increase (decrease) in securities under agreements to repurchase (1,152) 262
Net increase (decrease) in advances from Federal Home Loan Bank (102) 5,000
Proceeds from exercise of stock options 9 --
Net decrease in Federal funds purchased (620) --
-------- -------
Net cash provided by financing activities 9,026 11,263
-------- -------
Net increase (decrease) in cash and cash equivalents 2,406 7,859
Cash and cash equivalents at beginning of period 5,160 6,490
-------- -------
Cash and cash equivalents at end of period $ 7,566 14,349
======== =======
See accompanying notes to consolidated financial statements (unaudited).
6
CAPITAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(In Thousands)
--------------------------
2003 2002
------- ------
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings $ 482 287
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation, amortization and accretion 257 128
Provision for possible loan losses 272 217
FHLB dividend reinvestment (16) (10)
Decrease in refundable income taxes 213 --
Loss on other assets 21 --
Loss on sale of other real estate 4 19
Increase in accrued interest receivable (42) (118)
Decrease in loans held for sale 2,893 3,007
Increase in deferred tax asset -- (37)
Decrease in interest payable (46) --
Decrease in other assets 63 234
Decrease in other liabilities (71) (88)
Increase in accrued income taxes 10 76
------- ------
Total adjustments 3,558 3,428
------- ------
Net cash provided by operating activities $ 4,040 3,715
======= ======
Supplemental Schedule of Non-Cash Activities:
Unrealized losses on available-for-sale securities, net of
tax benefits of $42,000 and $64,000, respectively $ (68) (104)
======= ======
Non-cash transfers from loans to other real estate $ -- 552
======= ======
See accompanying notes to consolidated financial statements (unaudited).
7
CAPITAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of Capital
Bancorp, Inc. (Company), Capital Bank & Trust Company (Bank), its wholly-owned
subsidiary, and CBTC Corporation and Capital Housing Improvement Projects, Inc.,
wholly-owned subsidiaries of Capital Bank & Trust Company.
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the consolidated financial statements contain all
adjustments and disclosures necessary to summarize fairly the financial position
of the Company as of March 31, 2003 and December 31, 2002, the results of
operations for the three months ended March 31, 2003 and 2002, comprehensive
earnings for the three months ended March 31, 2003 and 2002 and changes in cash
flows for the three months ended March 31, 2003 and 2002. All significant
intercompany transactions have been eliminated. The interim consolidated
financial statements should be read in conjunction with the notes to the
consolidated financial statements presented in the Company's December 31, 2002
Annual Report to Stockholders. The results for interim periods are not
necessarily indicative of results to be expected for the complete fiscal year.
8
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to provide insight into the financial
condition and results of operations of the Company and its subsidiaries. This
discussion should be read in conjunction with the consolidated financial
statements. Reference should also be made to the Company's Annual Report on Form
10-K for the year ended December 31, 2002 for a more complete discussion of
factors that impact liquidity, capital and the results of operations.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operations and prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
The use of such words as expect, anticipate, forecast, and comparable terms
should be understood by the reader to indicate that the statement is
"forward-looking" and thus subject to change in a manner that can be
unpredictable. Factors that could cause actual results to differ from the
results anticipated, but not guaranteed, in this Report, include (without
limitation) economic and social conditions, competition for loans, mortgages,
and other financial services and products, changes in interest rates, unforeseen
changes in liquidity, results of operations, and financial conditions affecting
the Company's customers, as well as other risks that cannot be accurately
quantified or completely identified. Many factors affecting the Company's
financial condition and profitability, including changes in economic conditions,
the volatility of interest rates, political events and competition from other
providers of financial services simply cannot be predicted. Because these
factors are unpredictable and beyond the Company's control, earnings may
fluctuate from period to period. The purpose of this type of information is to
provide Form 10-Q readers with information relevant to understanding and
assessing the financial conditions and results of operations of the Company, and
not to predict the future or to guarantee results. The Company is unable to
predict the types of circumstances, conditions, and factors that can cause
anticipated results to change. The Company undertakes no obligation to publish
revised forward-looking statements to reflect the occurrence of changes or of
unanticipated events, circumstances, or results.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company to meet
future cash flow requirements, particularly those of customers who are either
withdrawing funds from their accounts or borrowing to meet their credit needs.
Proper asset/liability management is designed to maintain stability in
the balance of interest-sensitive assets to interest-sensitive liabilities in
order to provide a stable growth in net interest margins. Earnings on
interest-sensitive assets such as loans tied to the prime rate of interest and
federal funds sold, may vary considerably from fixed rate assets such as
long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as savings
accounts.
9
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, CONTINUED
The Company maintains a formal asset and liability management process
designed to quantify, monitor and control interest rate risk and to assist
management in maintaining stability in the net interest margin under varying
interest rate environments. The Company accomplishes this process through the
development and implementation of lending, funding and pricing strategies
designed to maximize net interest income under varying interest rate
environments subject to specific liquidity and interest rate risk guidelines.
(Please refer to Item 3 for additional information.)
Analysis of rate sensitivity and rate gap analysis are the primary
tools used to assess the direction and magnitude of changes in net interest
income resulting from changes in interest rates. Included in the analysis are
cash flows and maturities of financial instruments held for purposes other than
trading, changes in market conditions, loan volumes and pricing and deposit
volume and mix. These assumptions are inherently uncertain, and, as a result,
net interest income cannot be precisely estimated nor can the impact of higher
or lower interest rates on net interest income be precisely predicted. Actual
results will differ due to timing, magnitude and frequency of interest rate
changes and changes in market conditions and management's strategies, among
other factors.
Banks, in general, must maintain large cash balances to meet day-to-day
cash flow requirements as well as maintaining required reserves for regulatory
agencies. The cash balances maintained are the primary source of liquidity.
Federal funds sold, which are basically overnight or short-term loans to other
banks that increase the other bank's required reserves, are also a major source
of liquidity.
The Company's investment portfolio consists of earning assets that
provide interest income. Securities classified as available-for-sale include
securities intended to be used as part of the Company's asset/liability strategy
and/or securities that may be sold in response to changes in interest rate,
prepayment risk, the need or desire to increase capital and similar economic
factors. Securities totaling approximately $1.9 million (3.7% of the portfolio)
are presently scheduled to mature or reprice within the next twelve months.
A secondary source of liquidity is the Company's loan portfolio. At
March 31, 2003, loans of approximately $102.5 million (57.6% of the portfolio)
either will become due or will be subject to rate adjustments within twelve
months from the respective date. Emphasis is placed on structuring adjustable
rate loans.
As for liabilities, certificates of deposit of $100,000 or greater
totaling approximately $27.6 million (27.1% of the time deposit portfolio) will
mature during the next twelve months. The Company's deposit base increased
approximately $10.9 million during the quarter ended March 31, 2003. The
increase in deposits consists of a $8.5 million increase in transactional
accounts and a $2.4 million increase in time deposits. Advances from the Federal
Home Loan Bank decreased to $25.7 million at March 31, 2003 from $25.8 million
at December 31, 2002.
10
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, CONTINUED
Historically, there has been no significant reduction in immediately
withdrawable accounts such as negotiable order of withdrawal accounts, money
market demand accounts, demand deposit and regular savings. Management does not
expect that there will be significant withdrawals from these accounts in the
future that are inconsistent with past experience. A reduction in the interest
rate paid on these accounts could have an impact on the level of these accounts.
It is anticipated that with present maturities, the expected growth in
deposit base, and the efforts of management in its asset/liability management
program, liquidity will not pose a problem in the foreseeable future. The
Company has branched into Sumner County and Eastern Davidson County and expects
these locations to have a favorable impact on the deposit base. At the present
time there are no known trends or any known commitments, demands, events or
uncertainties that will result in or that are reasonable likely to result in the
Company's liquidity changing in any material way.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 7.7% at March
31, 2003 and 7.8% at December 31, 2002. Total assets increased 3.9% during the
three months ended March 31, 2003. The annualized rate of return on
stockholders' equity for the three months ended March 31, 2003 was 10.1%
compared to 6.9% for the comparable period in 2002. The Company's capital at
March 31, 2003 of $19,055,000 results from beginning capital of $18,632,000 plus
net earnings of $482,000, less decrease in unrealized gains on
available-for-sale securities of $68,000 plus proceeds of $9,000 related to the
exercise of stock options. No material changes in the mix or cost of capital is
anticipated in the foreseeable future.
Regulations of the Federal Deposit Insurance Corporation and the
Tennessee Department of Financial Institutions establish required minimum
capital levels for the Company and its subsidiary. Under these regulations,
banks must maintain certain capital levels as a percentage of average total
assets (leverage capital ratio) and as a percentage of total risk-based assets
(risk-based capital ratio). Under the risk-based requirements, various
categories of assets and commitments are assigned a percentage related to credit
risk ranging from 0% for assets backed by the full faith and credit of the
United States to 100% for loans other than residential real estate loans and
certain off-balance sheet commitments. Total capital is characterized as either
Tier 1 capital - common shareholders' equity, noncumulative perpetual preferred
stock and a limited amount of cumulative perpetual preferred - or total capital
which includes the allowance for loan losses up to 1.25% of risk weighted
assets, perpetual preferred stock, subordinated debt and various other hybrid
capital instruments, subject to various limits. Goodwill is not includable in
Tier 1 or total capital. The Company and its subsidiary must maintain a Tier 1
capital to risk-based assets of at least 4.0%, a total capital to risk-based
assets ratio of at least 8.0% and a leverage capital ratio (defined as Tier 1
capital to average total assets for the most recent quarter) of at least 4.0%.
The same ratios are also required in order for a bank to be considered
"adequately capitalized" under the "prompt corrective action" regulations, which
impose certain operating restrictions on institutions which are not adequately
capitalized. At March 31, 2003 the Company and its subsidiary have a Tier 1
risk-based ratio of 9.9%, a total capital to risk-based ratio of 11.2% and a
Tier 1 leverage ratio of 7.8%. These ratios fell within the category of "well
capitalized" under the regulations.
11
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
CAPITAL RESOURCES, CONTINUED
In view of the continued growth of the Company, the Company is
considering various measures for raising additional capital to support
anticipated future growth.
The Federal Reserve Board imposes consolidated capital guidelines on
bank holding companies which have more than $150 million in consolidated assets.
These guidelines require bank holding companies to maintain consolidated capital
ratios which are essentially the same as the minimum capital levels required for
state banks. The Company's consolidated capital ratios were substantially the
same as those set forth above for the Bank, and exceeded the minimums required
under these Federal Reserve Board guidelines at March 31, 2003.
STOCK OPTION PLAN
In March of 2001, the Company's stockholders approved the Capital
Bancorp, Inc. 2001 Stock Option Plan which provides for the grant of options to
purchase 500,000 shares of the Company's stock. The Company agreed with the Bank
that it would exchange its options to the holders of stock options under the
Bank's stock option plan on an option-for-option basis. Thus options that were
outstanding under the Bank's stock option plan have been exchanged for options
under the Company's stock option plan. It is intended that the holders of the
Bank's options will be able to exercise their options on exactly the terms and
conditions that they could have exercised Bank stock options. Thus substantially
identical vesting, exercise price, and all other material terms of exercise have
been grafted on the stock options exchanged by Bank stock option holders. (Thus,
for example, Bank stock options that were fully vested at the time that the
Company acquired the Bank became fully vested at the time of their exchange for
Company stock options.)
During the quarter ended March 31, 2002, the Board of Directors of the
Company and the optionees agreed to a restructuring of the Company's outstanding
options. A summary of options activity for directors, former directors, the four
senior officers and others is more fully described in the Company's December 31,
2002 Annual Report to Stockholders. During the quarter ended March 31, 2003, one
employee exercised 700 shares of his options and the remaining 800 shares of his
options were forfeited upon his termination of employment. At March 31, 2003,
the Company has granted the right to purchase 127,000 shares of stock to its
officers and employees at an exercise price of $12.75, 500 shares to its
officers and employees at an exercise price of $15.30, 1,500 shares to its
officers and employees at an exercise price of $16.00 and 130,000 shares of
stock to the Bank's Directors at an exercise price of $10.00 per share. At March
31, 2003, 236,000 shares were exercisable.
Under the Stock Option Plan, stock option awards may be granted in the
form of incentive stock options or nonstatutory stock options, and are generally
exercisable for up to ten years following the date such option awards are
granted. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of the common stock on the grant date.
12
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
STOCK OPTION PLAN, CONTINUED
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting
for Stock Based Compensation", as amended by SFAS No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure", sets forth the methods
for recognition of cost of plans similar to those of the Company. As is
permitted, management has elected to continue accounting for the plan under APB
Opinion 25 and related Interpretations in accounting for its plan. However,
under SFAS No. 123, the Company is required to make proforma disclosures as if
cost had been recognized in accordance with the pronouncement. Had compensation
cost for the Company's stock option plan been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
No. 123, the Company's net earnings, basic earnings per common share and diluted
earnings per common share would have been reduced to the proforma amounts
indicated below.
In Thousands,
Except Per Share Amounts
-----------------------------------------
For the Period from For the Period from
January 1, 2003 to January 1, 2002 to
March 31, 2003 March 31, 2002
------------------- -------------------
Net earnings As Reported $482 $287
Proforma $481 $267
Basic earnings per common share As Reported $.31 $.18
Proforma $.31 $.17
Diluted earnings per common share As Reported $.29 $.18
Proforma $.29 $.17
The Company uses the fair value method to calculate the compensation
reported in the proforma earnings. The compensation cost for 2002 related to the
grant of stock options includes all grants made in 2002 plus the impact of
changes to option terms as set forth above. The fair value of options for 2002
ranged from $0.20 to $1.48 for each option. The fair value for 2002 was
estimated using the Black-Scholes option-pricing model using the following
assumptions: risk free interest rate ranging from 3.56% to 5.11%; expected life
of ten years; and dividend yield ranging from 2.95% to 4.70%. The dividend yield
was computed assuming a 15% return on equity with a 30% dividend to earnings
payout ratio.
RESULTS OF OPERATIONS
Net earnings were $482,000 for the three months ended March 31, 2003 as
compared to $287,000 for the same period in 2002.
As in most financial institutions, a major element in analyzing the
statement of earnings is net interest income which is the excess of interest
earned over interest paid. The net interest margin could be materially affected
during period of volatility in interest.
13
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's interest income, excluding tax equivalent adjustments,
increased by $489,000 or 15.8% during the three months ended March 31, 2003 as
compared to the same period in 2002. The ratio of average earning assets to
total average assets was 95.3% for the quarter ended March 31, 2003 and 94.1%
for the quarter ended March 31, 2002.
Interest expense increased by $140,000 for the three months ended March
31, 2003 or 11.9% to $1,316,000 compared to $1,176,000 for the same period in
2002. Such increases in interest expense can be attributable primarily to an
increase in average interest bearing liabilities.
The foregoing resulted in net interest income of $2,275,000 for the
three months ended March 31, 2003, for an increase of $349,000, or 18.1%,
compared to the same period in 2002.
The following schedule details the loans of the Company at March 31,
2003 and December 31, 2002:
(In Thousands)
------------------------------
March 31, December 31,
2003 2002
--------- ------------
Commercial, financial & agricultural $ 95,093 88,406
Real estate - construction 18,253 21,488
Real estate - mortgage 61,569 60,260
Consumer 5,765 5,766
-------- -------
$180,680 175,920
======== =======
The Company accounts for impaired loans under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures". These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
including credit card, residential mortgage, and consumer installment loans.
A loan is deemed to be impaired when it is probable that the Company
will be unable to collect the scheduled payments of principal and interest due
under the contractual terms of the loan agreement. Impaired loans are measured
at the present value of expected future cash flows discounted at the loan's
effective interest rate, at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. If the measure of
the impaired loan is less than the recorded investment in the loan, the Company
shall recognize an impairment by creating a valuation allowance with a
corresponding charge to the provision for loan losses or by adjusting an
existing valuation allowance for the impaired loan with a corresponding charge
or credit to the provision for loan losses.
14
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's first mortgage single family residential, consumer and
credit card loans or other revolving credit plans which total approximately
$57,449,000, $5,620,000 and $145,000, respectively at March 31, 2003, are
divided into various groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment and thus are not subject to the provisions
of SFAS Nos. 114 and 118. Substantially all other loans of the Company are
evaluated for impairment under the provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be impaired.
Loans are placed on nonaccrual status when doubt as to timely collection of
principal or interest exists, or when principal or interest is past due 90 days
or more unless such loans are well-secured and in the process of collection.
Delays or shortfalls in loan payments are evaluated with various other factors
to determine if a loan is impaired. Generally, delinquencies under 90 days are
considered insignificant unless certain other factors are present which indicate
impairment is probable. The decision to place a loan on nonaccrual status is
also based on an evaluation of the borrower's financial condition, collateral,
liquidation value, and other factors that, in the judgment of management, affect
the borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At March
31, 2003, the Company had nonaccrual loans totaling $1,198,000 as compared to
$1,306,000 at December 31, 2002.
Loans not on nonaccrual status are classified as impaired in certain
cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
Generally the Company also classifies as impaired any loans the terms
of which have been modified in a troubled debt restructuring after January 1,
1995. Interest is accrued on such loans that continue to meet the modified terms
of their loan agreements. At March 31, 2003, the Company had no loans that have
had the terms modified in a troubled debt restructuring.
15
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's charge-off policy for impaired loans is similar to its
charge-off policy for all loans in that loans are charged-off in the month when
they are considered uncollectible.
Impaired loans and related allowance for loan loss amounts at March 31,
2003 and December 31, 2002 were as follows:
March 31, 2003 December 31, 2002
--------------------------- --------------------------
Allowance Allowance
Recorded for Recorded for
(In Thousands) Investment Loan Loss Investment Loan Loss
---------- --------- ---------- ---------
Impaired loans with allowance for
loan loss $1,036 246 1,150 290
Impaired loans with no allowance for
loan loss -- -- -- --
------ ----- ----- ---
$1,036 246 1,150 290
====== ===== ===== ===
The allowance for loan loss related to impaired loans was measured
based upon the estimated fair value of related collateral.
The average recorded investment in impaired loans for the three months
ended March 31, 2003 and 2002 was $588,000 and $747,000, respectively. The
related amount of interest income recognized on the accrual method for the
period that such loans were impaired was approximately $14,000 and $20,000 for
2003 and 2002, respectively.
The following schedule details selected information as to
non-performing loans of the Company at March 31, 2003:
March 31, 2003 December 31, 2002
--------------------------- ---------------------------
Past Due Past Due
90 Days Non-Accrual 90 Days Non-Accrual
-------- ----------- -------- -----------
(In Thousands) (In Thousands)
Real estate - mortgage $ 245 471 149 764
Real estate - construction -- 254 -- 246
Installment loans 34 38 53 --
Commercial 32 435 82 296
------ ----- ----- -----
$ 311 1,198 284 1,306
====== ===== ===== =====
Renegotiated loans $ -- -- -- --
====== ===== ===== =====
16
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Transactions in the allowance for loan losses were as follows:
Three Months Ended
March 31,
--------------------------
2003 2002
------- ------
(In Thousands)
Balance, January 1, 2003 and 2002, respectively $ 2,535 2,122
Add (deduct):
Losses charged to allowance (213) (217)
Recoveries credited to allowance 29 8
Provision for loan losses 272 217
------- ------
Balance, March 31, 2003 and 2002, respectively $ 2,623 2,130
======= ======
The provision for loan losses was $272,000 and $217,000 for the first
three months of 2003 and 2002, respectively. The provision for loan losses is
based on past loan experience and other factors which, in management's judgment,
deserve current recognition in estimating possible loan losses. Such factors
include growth and composition of the loan portfolio, review of specific loan
problems, the relationship of the allowance for loan losses to outstanding
loans, and current economic conditions that may affect the borrower's ability to
repay. This is not an exact science. Management has in place a system designed
to identify and monitor potential problem loans on a timely basis. Of course, no
system is either perfect or infallible.
The Company maintains an allowance for loan losses which management
believes is adequate to absorb loses inherent in the loan portfolio. A formal
review is prepared monthly by the Loan Review Officer to assess the risk in the
portfolio and to determine the adequacy of the allowance for loan losses. The
review includes analysis of historical performance, the level of non-performing
and adversely rated loans, specific analysis of certain problem loans, loan
activity since the previous assessment, reports prepared by the Loan Review
Officer, consideration of current economic conditions, and other pertinent
information. The level of the allowance to net loans outstanding will vary
depending on the overall results of this monthly assessment. The review is
presented to and subject to approval by the Board of Directors.
The following table presents total internally graded loans as of March
31, 2003 and December 31, 2002:
March 31, 2003
(In Thousands) Special
Total Mention Substandard Doubtful
-------------- ------- ----------- --------
Commercial, financial and
agricultural $1,515 -- 1,457 58
Real estate mortgage 1,682 151 1,531 --
Real estate construction -- -- -- --
Consumer 199 25 174 --
------ ----- ----- ----
$3,396 176 3,162 58
====== ===== ===== ====
17
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
December 31, 2002
(In Thousands) Special
Total Mention Substandard Doubtful
----------------- ------- ----------- --------
Commercial, financial and
agricultural $1,128 -- 1,072 56
Real estate mortgage 2,341 -- 2,341 --
Real estate construction -- -- -- --
Consumer 350 48 302 --
------ ----- ----- ----
$3,819 48 3,715 56
====== ===== ===== ====
The collateral values, based on estimates received by management,
securing these loans total approximately $2,238,000 ($2,058,000 related to real
property and $180,000 related to commercial and other loans). Such loans are
listed as classified when information obtained about possible credit problems of
the borrower has prompted management to question the ability of the borrower to
comply with the repayment terms of the loan agreement. The loan classifications
do not represent or result from trends or uncertainties which management expects
will materially and adversely affect impact future operating results, liquidity
or capital resources.
Residential real estate loans that are graded substandard totaling
$1,682,000 and $2,341,000 at March 31, 2003 and December 31, 2002 consist of
nineteen and thirty-three individual loans, respectively, that have been graded
accordingly due to bankruptcies, inadequate cash flows and delinquencies. No
material losses on these loans is anticipated by management.
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
March 31, 2003 December 31, 2002
------------------------------ ------------------------------
Percent of Percent of
Loans In Loans In
In Each Category In Each Category
Thousands To Total Loans Thousands To Total Loans
--------- -------------- --------- --------------
Commercial, financial and
agricultural $1,705 52.6% $1,648 50.3%
Real estate construction 354 10.1 342 12.2
Real estate mortgage 354 34.1 342 34.2
Consumer 210 3.2 203 3.3
------ ----- ------ -----
$2,623 100.0% $2,535 100.0%
====== ===== ====== =====
18
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at March 31,
2003 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
Non-interest income increased $348,000 or 104.8% to $680,000 during the
three months ended March 31, 2003 compared to $332,000 for the same period in
2002. The increase in 2003 was due primarily to an increase in gain on sales of
loans during the first quarter of 2003 compared to 2002.
Non-interest expense increased $342,000 or 21.7% to $1,921,000 during
the first three months of 2003 compared to $1,579,000 during the same period in
2002. The increase in 2003 was due primarily to increases in salaries and
employee benefits and other operating expenses. These increases relate
principally to costs associated with opening new branches.
Income taxes were $280,000 for the first quarter of 2003 as compared to
income taxes of $175,000 for the first quarter of 2002.
The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share for the Company begins with basic earnings per
share plus the effect of common shares contingently issuable from stock options.
The following is a summary of components comprising basic and diluted
earnings per share (EPS) for the three months ended March 31, 2003 and 2002:
(In Thousands, except share amounts) 2003 2002
---------- ---------
Basic EPS Computation:
Numerator - income available to common
shareholders $ 482 287
---------- ---------
Denominator - weighted average number of
common shares outstanding 1,565,870 1,565,271
---------- ---------
Basic earnings per common share $ .31 .18
========== =========
Diluted EPS Computation:
Numerator - income available to common shareholders $ 482 287
---------- ---------
Denominator:
Weighted average number of common shares
outstanding 1,565,870 1,565,271
Dilutive effect of stock options 86,020 19,755
---------- ---------
1,615,890 1,585,026
---------- ---------
Diluted earnings per common share $ .29 .18
========== =========
19
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
Management is not aware of any current recommendations by the
regulatory authorities which, if implemented, would have a material effect on
the Company's liquidity, capital resources or operations.
IMPACT OF INFLATION
The primary impact which inflation has on the results of the Company's
operations is evidenced by its effects on interest rates. Interest rates tend to
reflect, in part, the financial market's expectations of the level of inflation
and, therefore, will generally rise or fall as the level of expected inflation
fluctuates. To the extent interest rates paid on deposits and other sources of
funds rise or fall at a faster rate than the interest income earned on funds,
loans or invested, net interest income will vary. Inflation also affects
non-interest expenses as goods and services are purchased, although this has not
had a significant effect on net earnings in recent years. If the inflation rate
stays flat or increases slightly, the effect on profits is not expected to be
significant.
20
CAPITAL BANCORP, INC.
FORM 10-Q, CONTINUED
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary component of market risk is interest rate
volatility. Fluctuations in interest rates will ultimately impact both the level
of income and expense recorded on a large portion of the Company's assets and
liabilities, and the market value of all interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity such as Federal funds sold or purchased and loans, securities and
deposits. Based upon the nature of the Company's current operations, the Company
is not presently subject to foreign currency exchange or commodity price risk.
Interest rate risk (sensitivity) management focuses on the earnings
risk associated with changing interest rates. Management seeks to maintain
profitability in both immediate and long term earnings through funds
management/interest rate risk management. The Company's rate sensitivity
position has an important impact on earnings. Senior management of the Company
meets periodically to analyze the rate sensitivity position. Such meetings are
intended to focus on the spread between the cost of funds and interest yields
generated primarily through loans and investments.
Managing interest rate risk is a very subjective exercise based on a
wide variety of factors. This activity is based significantly on management's
subjective beliefs about future events (such as actions of the Federal Reserve
Board and the conduct of competitors) and is never guaranteed.
There are no known material changes in reported market risks during the
three months ended March 31, 2003 known to management. Please refer to Item 2 of
Part I of this Report for additional information related to market and other
risks.
ITEM 4: CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, we carried
out an evaluation, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information that we are required to disclose in the reports we file under
the Securities Exchange Act of 1934, within the time periods specified in the
SEC's rules and forms. Our Chief Executive Officer and Chief Financial Officer
also concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to our Company required to
be included in our periodic SEC filings. In connection with the new rules, we
are in the process of further reviewing and documenting our disclosure controls
and procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes designed to enhance their
effectiveness and to ensure that our systems evolve with our business.
There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of this evaluation.
21
CAPITAL BANCORP, INC.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Shares of the Company's common stock were issued to Directors
and/or Employees pursuant to the Company's Stock Option Plan
as follows:
Number of Shares of
DATE OF SALE Common Stock Sold PRICE PER SHARE
------------ ------------------- ---------------
January 14, 2003 700 $12.75
The aggregate proceeds of the shares sold were $8,925.00.
There were no underwriters and no underwriting discounts or
commissions. All sales were for cash.
The Company believes that an exemption from registration of
these shares was available to the Company in that the issuance
thereof did not constitute a public offering of securities
within the meaning of the Securities Act of 1933, as amended.
The securities sold are not convertible.
The proceeds of the sales are being used by the Company for
general corporate purposes.
(d) The only restrictions on working capital and/or dividends are
those reported in Part I.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) Not applicable.
22
CAPITAL BANCORP, INC.
PART II. OTHER INFORMATION, CONTINUED
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) None.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99.1 consists of certifications required by Section
906 of the Sarbanes-Oxley Act of 2002.
(b) The Company filed a Current Report on Form 8-K on January 10,
2003 reporting the Company's press release to the public
regarding earnings.
23
CAPITAL BANCORP, INC.
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 BANCORP, INC.
-----------------------------------------
(Registrant)
DATE: May 9, 2003 /s/ Rick Hart
--------------------------- -----------------------------------------
R. Rick Hart, President and
Chief Executive Officer
DATE: May 9, 2003 /s/ Sally P. Kimble
--------------------------- -----------------------------------------
Sally P. Kimble, Executive Vice President
and Chief Financial Officer
24
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
OF CAPITAL BANCORP, INC.
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
The Undersigned R. Rick Hart, Chairman, President and Chief Executive
Officer of Capital Bancorp, Inc. ("Company"), certifies with respect to the
Company's Quarterly Report on Form 10-Q for the period ending March 31, 2003
("report"), that:
(1) I have reviewed the report being filed;
(2) Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
(3) Based on my knowledge, the financial statements, and other
financial information included in the report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
(4) I and the other certifying officers are responsible for
establishing and maintaining disclosure controls and procedures (as such term is
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(1) Designed such disclosure controls and procedures to
ensure that material information relating to the
Company, including its consolidated subsidiaries, is
made known to them by others within those entities,
particularly during the period in which the periodic
reports are being prepared;
(2) Evaluated the effectiveness of the Company's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of the report
("Evaluation Date"); and
(3) Presented in the report our conclusions about the
effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the board of directors (or persons fulfilling the equivalent function):
(1) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the Company's ability to record, process,
summarize and report financial data and have
identified for the Company's auditors any material
weaknesses in internal controls; and
(2) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Company's internal controls; and
25
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
OF CAPITAL BANCORP, INC.
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002, CONTINUED
(6) I and the other certifying officers have indicated in the
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ R. Rick Hart
-----------------------------------------
R. Rick Hart, Chairman,
President and Chief Executive Officer
Date: May 9, 2003
26
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
OF CAPITAL BANCORP, INC.
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
The Undersigned Sally P. Kimble, Executive Vice President and Chief
Financial Officer of Capital Bancorp, Inc. ("Company"), certifies with respect
to the Company's Quarterly Report on Form 10-Q for the period ending March 31,
2003 ("report"), that:
(1) I have reviewed the report being filed;
(2) Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by the report;
(3) Based on my knowledge, the financial statements, and other
financial information included in the report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in the report;
(4) I and the other certifying officers are responsible for
establishing and maintaining disclosure controls and procedures (as such term is
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(1) Designed such disclosure controls and procedures to
ensure that material information relating to the
Company, including its consolidated subsidiaries, is
made known to them by others within those entities,
particularly during the period in which the periodic
reports are being prepared;
(2) Evaluated the effectiveness of the Company's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of the report
("Evaluation Date"); and
(3) Presented in the report our conclusions about the
effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the board of directors (or persons fulfilling the equivalent function):
(1) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the Company's ability to record, process,
summarize and report financial data and have
identified for the Company's auditors any material
weaknesses in internal controls; and
(2) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Company's internal controls; and
27
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
OF CAPITAL BANCORP, INC.
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002, CONTINUED
(6) I and the other certifying officers have indicated in the
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Sally P. Kimble
-----------------------------------------
Sally P. Kimble, Executive Vice President
and Chief Financial Officer
Date: May 9, 2003
28