<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
--------------------------
[ ] 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: 000-25227
Capitol City Bancshares, Inc.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2452995
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
562 Lee Street, S.W., Atlanta, Georgia 30310
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(Address of principal executive offices)
(404) 752-6067
------------------------------------------
(Registrant's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 10, 2000: 532,088.
Transitional Small Business Disclosure Format (Check One) Yes No X
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<PAGE>
INDEX
Page
----
Part I. Financial Information
---------------------
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet
as of September 30, 2000...................................3
Consolidated Statements of Income and
Comprehensive Income (Loss) for the Three and Nine
Months Ended September 30, 2000 and 1999...................4
Consolidated Statements of Cash Flows For The
Nine Months Ended September 30, 2000 and 1999..............5
Notes to Consolidated Financial Statements...................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8-12
Part II Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K................................13
Signatures....................................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<S> <C>
Assets
------
Cash and due from banks $ 2,760,838
Federal funds sold 296,000
Securities available-for-sale, at fair value 18,402,110
Loans 41,650,697
Less allowance for loan losses 622,645
---------------------
Loans, net 41,028,052
---------------------
Premises and equipment 2,471,115
Other assets 845,101
---------------------
Total assets $ 65,803,216
=====================
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Demand $ 17,134,724
Interest-bearing demand 7,674,872
Savings 4,124,502
Time 29,239,841
---------------------
Total deposits 58,173,939
Note payable 183,500
Other liabilities 534,207
---------------------
Total liabilities 58,891,646
---------------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $6; 5,000,000 shares authorized;
532,088 shares issued and outstanding 3,192,528
Capital surplus 2,128,352
Retained earnings 1,898,303
Accumulated other comprehensive loss (307,613)
---------------------
Total stockholders' equity 6,911,570
---------------------
Total liabilities and stockholders' equity $ 65,803,216
=====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ----------------------------------------
2000 1999 2000 1999
------------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 1,175,508 $ 799,293 $ 3,232,109 $ 2,088,301
Taxable securities 109,840 126,501 336,298 460,166
Nontaxable securities 103,260 97,000 307,747 273,000
Federal funds sold 20,633 15,839 50,959 85,382
------------------- ------------------- ------------------- -------------------
Total interest income 1,409,241 1,038,633 3,927,113 2,906,849
------------------- ------------------- ------------------- -------------------
Interest expense
Deposits 481,438 384,206 1,341,878 1,109,382
Other borrowings 4,144 0 9,746 0
------------------- ------------------- ------------------- -------------------
485,582 384,206 1,351,624 1,109,382
------------------- ------------------- ------------------- -------------------
Net interest income 923,659 654,427 2,575,489 1,797,467
Provision for loan losses 0 55,000 126,742 115,000
------------------- ------------------- ------------------- -------------------
Net interest income after provision
for loan losses 923,659 599,427 2,448,747 1,682,467
------------------- ------------------- ------------------- -------------------
Other income
Service charges on deposit accounts 373,638 326,189 1,024,152 869,953
Other operating income 28,761 42,445 65,639 106,349
Loss on sale of securities available-for-sale 0 0 (1,353) 0
------------------- ------------------- ------------------- -------------------
Total other income 402,399 368,634 1,088,438 976,302
------------------- ------------------- ------------------- -------------------
Other expenses
Salaries and employee benefits 411,579 343,915 1,160,496 981,898
Occupancy and equipment expenses 159,964 137,962 464,117 355,652
Other operating expenses 263,207 225,875 789,020 729,657
------------------- ------------------- ------------------- -------------------
Total other expenses 834,750 707,752 2,413,633 2,067,207
------------------- ------------------- ------------------- -------------------
Net income before income taxes 491,308 260,309 1,123,552 591,562
Income tax expense 169,910 71,875 309,379 119,360
------------------- ------------------- ------------------- -------------------
Net income 321,398 188,434 814,173 472,202
------------------- ------------------- ------------------- -------------------
Other comprehensive income (loss)
Unrealized gains (losses) on securities
available-for-sale arising during period,
net of tax 142,411 (87,920) 121,940 (453,557)
Reclassification adjustment for losses realized
in net income, net of tax 0 0 893 0
------------------- ------------------- ------------------- -------------------
Other comprehensive income (loss) 142,411 (87,920) 122,833 (453,557)
------------------- ------------------- ------------------- -------------------
Comprehensive income $ 463,809 $ 100,514 $ 937,006 $ 18,645
=================== =================== =================== ===================
Basic earnings per common share $ 0.60 $ 0.35 $ 1.53 $ 0.89
=================== =================== =================== ===================
Diluted earnings per common share $ 0.54 $ 0.35 $ 1.38 $ 0.89
=================== =================== =================== ===================
Cash dividends per share of common stock $ 0 $ 0 $ 0.10 $ 0
=================== =================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------------- ------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 814,173 $ 472,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 171,378 134,806
Provision for loan losses 126,742 115,000
Realized loss on sale of securities 1,353 0
Other operating activities (41,755) 43,388
---------------------- ------------------------
Net cash provided by operating activities 1,071,891 765,396
---------------------- ------------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (1,792,439) (6,642,549)
Proceeds from sale of securities available-for-sale 223,621 0
Proceeds from maturities of securities available-for-sale 1,488,317 5,895,943
Net decrease in Federal funds sold 244,000 2,741,000
Net increase in loans (7,805,525) (8,551,571)
Purchase of premises and equipment (165,967) (210,565)
---------------------- ------------------------
Net cash used in investing activities (7,807,993) (6,767,742)
---------------------- ------------------------
FINANCING ACTIVITIES
Net increase in deposits 7,103,414 6,509,726
Proceeds from note payable 86,200 0
Repayment of note payable (18,175) 0
Payment of dividends (53,209) 0
---------------------- ------------------------
Net cash provided by financing activities 7,118,230 6,509,726
---------------------- ------------------------
Net increase in cash and due from banks 382,128 507,380
Cash and due from banks, beginning of period 2,378,710 2,136,219
---------------------- ------------------------
Cash and due from banks, end of period $ 2,760,838 $ 2,643,599
====================== ========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt this
statement effective January 1, 2001. SFAS No. 133 requires the Company
to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated
as hedges, the gain or loss must be recognized in earnings in the
period of change. For derivatives that are designated as hedges,
changes in the fair value of the hedged assets, liabilities, or firm
commitments must be recognized in earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings
immediately. Management has not yet determined what effect the
adoption of SFAS No. 133 will have on the Company's earnings or
financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
<PAGE>
NOTE 3. EARNINGS PER COMMON SHARE
Presented below is a summary of the components used to calculate basic
and diluted earnings per share for the periods ended September 30,
2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 1999 2000 1999
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 321,398 $ 188,434 $ 814,173 $ 472,202
============= ============ ============ =============
Weighted average common shares outstanding 532,088 532,088 532,088 532,088
Net effect of the assumed exercise of stock
options based on the treasury stock method
using the average market price for the period 58,082 - 56,826 -
------------- ------------ ------------ -------------
Total weighted average common shares and
common stock equivalents outstanding 590,170 532,088 588,914 532,088
============= ============ ============ =============
Diluted earnings per share $ 0.54 $ 0.35 $ 1.38 $ 0.89
============= ============ ============ =============
</TABLE>
7
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
Forward-Looking Statements
This quarterly report contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area,
and accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
Total assets increased from $57.6 million to $65.8 million, or 14.3% for the
nine months ended September 30, 2000. The increase in total assets in 2000 is
slightly above the 13.6% growth for the same period in 1999. The growth in both
years continues to be funded by increases in total deposits, which increased by
$7.1 million and $6.5 million, respectively. The net increase in total assets
for the nine months ended September 30, 2000 consisted primarily of an increase
of $7.8 million in total loans and a decrease of $1.8 million in cash and due
from banks. The loan to deposit ratio at September 30, 2000 was 72% compared to
63% at September 30, 1999. Total loans have increased by $11.4 million since
September 30, 1999 which for the same period, total deposits have increased by
$10.3 million.
Stockholders' equity increased by $884,000 for the nine months ended September
30, 2000. This net increase consists of net income of $814,000 less dividends
paid of $53,000 and a recovery of unrealized losses on securities of $123,000.
8
<PAGE>
LIQUIDITY
Liquidity management involves the matching of the cash flow requirements of
customer withdrawals of funds and the funding of loan originations, and the
ability of the Company's subsidiary bank to meet those requirements. Management
monitors and maintains appropriate levels of liquidity so that maturities of
assets and deposit growth are such that adequate funds are provided to meet
estimated customer withdrawals and loan requests.
At September 30, 2000, the Bank's liquidity was considered satisfactory in
relation to regulatory guidelines and internal target ratios. The liquidity
ratio was 26.63% at September 30, 2000.
REGULATORY CAPITAL REQUIREMENTS
Banking regulations require the Company and Bank to maintain minimum capital
levels in relation to assets. At September 30, 2000, the Company's and Bank's
capital ratios were considered adequate based on regulatory minimum capital
requirements. The minimum capital requirements and the actual capital ratios for
the Company and Bank at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
Regulatory
Minimum
Company Bank Requirement
<S> <C> <C> <C>
Leverage Capital Ratio 11.27% 11.45% 4.00%
Risk-Based Capital Ratios
Core Capital 14.06% 14.28% 4.00%
Total Capital 15.28% 15.49% 8.00%
</TABLE>
Management is not aware of any other current recommendations by the regulatory
authorities, events or trends, which, if they were to be implemented, would have
a material effect on the Company's liquidity, capital resources, or operations.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income increased by $269,000 and $778,000 for
the three and nine month periods ended September 30, 2000, respectively,
compared to the same period in 1999. The increase in net interest income for
both periods ended September 30, 2000 is attributable to an increase in earning
assets of $11.7 million as compared to September 30, 1999. As noted above, loans
increased during this period by $11.4 million, which generally provide greater
yields to the Company. The net yield on total loans for the nine months ended
September 30, 2000 was approximately 11.13%. During this same period, total
deposits increased by $10.3 million, which included an increase of $6.4 million
in interest-bearing deposits and an increase of $3.9 million in non-interest
bearing deposits. The overall result of an increase in net interest income is
based on the spread between rates earned on interest earning assets and rates
paid on interest bearing liabilities.
9
<PAGE>
The net interest margin improved to 6.07% at September 30, 2000 as compared to
5.11% at September 30, 1999.
Provision for Loan Losses. The provision for loan losses is based on
management's evaluation of the economic environment, the history of charged off
loans and recoveries, size and composition of the loan portfolio, nonperforming
and past due loans, and other aspects of the loan portfolio. Management reviews
the allowance for loan loss on a quarterly basis and makes provisions as
necessary. A provision of $127,000 was made during the nine month period ending
September 30, 2000 based upon this evaluation process as compared to $115,000
for the same period in 1999. The allowance for loan loss as a percentage of
total loans was 1.49% at September 30, 2000 compared to .69% at September 30,
1999. Management believes the allowance for loan loss at September 30, 2000 is
adequate to meet any future losses in the loan portfolio. The increase in the
provision for the nine months ended September 30, 2000 as compared to 1999
reflects the overall increase in loans, the increase in past due loans over 90
days, and the volume of charge-offs recognized in recent years. There was no
provision recognized for the three months ended September 30, 2000 due primarily
to a decrease of $194,000 in net charge-offs. The increase in past due loans
does not represent significant losses due to the Bank's collateral position in
most of these loans. There were no nonperforming loans as of September 30, 2000.
At September 30, 2000 and 1999, nonaccrual, past due, and restructured loans
were as follows:
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
--------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Total nonaccruing loans $ - $ -
Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing 336 45
Restructured loans - -
</TABLE>
It is the policy of the Company to discontinue the accrual of interest income
when, in the opinion of management, collection of such interest becomes
doubtful. This status is accorded such interest when (1) there is a significant
deterioration in the financial condition of the borrower and full repayment of
principal and interest is not expected and (2) the principal or interest is more
than ninety days past due, unless the loan is both well-secured and in the
process of collection. Accrual of interest on such loans is resumed when, in
management's judgment, the collection of interest and principal becomes
probable.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
10
<PAGE>
Information regarding certain loans and allowance for loan loss data through
September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
2000 1999
-------------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Average amount of loans outstanding $ 38,708 $ 21,391
==================== ==================
Balance of allowance for loan losses at beginning of period $ 508 $ 300
Loans charged off
Commercial and financial (7) (31)
Real estate (34) (53)
Installment (58) (185)
-------------------- ------------------
(99) (269)
-------------------- ------------------
Loans recovered
Commercial and financial 3 9
Real estate 9 -
Installment 75 53
-------------------- ------------------
87 62
-------------------- ------------------
Net charge-offs (12) (207)
-------------------- ------------------
Additions to allowance charged to operating expense during period 127 115
-------------------- ------------------
Balance of allowance for loan losses at end of period 623 208
==================== ==================
Ratio of net loans charged-off during the
period to average loans outstanding (.03)% (.97)%
==================== ==================
</TABLE>
Other Income. Other income increased by $34,000 and $112,000 for the three and
nine months ended September 30, 2000, respectively, compared to the same period
in 1999. The single most significant difference which affected both periods was
increases of $47,000 and $154,000 in service charges on deposit accounts for the
three and nine months ended September 30, 2000 compared to the same periods in
1999.
Other Expenses. Other expenses increased by $127,000 and $346,000 for the three
and nine months ended September 30, 2000 as compared to the same period in 1999.
The most significant increases in 2000 are increases of $179,000 in salaries and
employee benefits and an increase of $108,000 in equipment and occupancy
expenses for the nine month period ended September 30, 2000. During the same
period, other operating expenses increased by $59,000. The increase in salaries
and employee benefits for both the three and nine month periods represents
normal increases in salaries and an increase in the number of employees. At
September 30, 2000, the number of full-time equivalent employees was 42 compared
to 35 at September 30, 1999.
11
<PAGE>
The increase in occupancy and equipment expenses for the nine months ended
September 30, 2000 is primarily attributable to increases in depreciation
expense, property taxes, maintenance and rent which increased $31,000, $24,000,
$34,000 and $10,000, respectively. The increase in other operating expenses was
not due to any one significant item.
Income Taxes. Income tax expense increased by $98,000 and $190,000 for the three
and nine months ended September 30, 2000 as compared to 1999. The effective tax
rate for 2000 and 1999 was 28% and 20%, respectively. The effective tax rate has
been significantly less than the statutory tax rate due to nontaxable interest
income on securities. Beginning in the third quarter of 2000, the Company began
accruing for state income taxes. In prior years, the Company has not paid state
income taxes due to state net operating loss carryforwards.
Net Income. Net income increased by $133,000 and $342,000 for the three and nine
months ended September 30, 2000 as compared to the same periods in 1999. The
primary reason for the increase is the increase in net interest income and
service charge income.
12
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITOL CITY BANCSHARES, INC.
Date: November 10, 2000 /s/ George G. Andrews
------------------ ------------------------------------
George G. Andrews
President and Director
Date: November 10, 2000 /s/ Kevin M. Sharpe
------------------ ------------------------------------
Kevin M. Sharpe
Vice President and
Chief Financial Officer
14
