<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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.
------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58 - 1994305
-------------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
562 Lee Street, S.W., Atlanta, Georgia 30311
--------------------------------------------
(Address of principal executive office)
(404) 752-6067
--------------
(Issuer's telephone number)
N/A
----------------------------------
(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
------ ------
State the number of shares outstanding of each of the issuer's classes of common
stock, as of August 1, 2000: 532,088; $6 par value
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of June 30, 2000...........................................3
Condensed Consolidated Statements of Income and
Comprehensive Income for the Three and Six Months
Ended June 30, 2000 and 1999...............................4
Condensed Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 2000 and 1999..............5
Notes to Condensed Consolidated Financial Statements.......6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...8 - 12
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders....13
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
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
Assets
------
Cash and due from banks $ 1,491,942
Federal funds sold 1,985,000
Securities available-for-sale, at fair value 16,763,363
Loans 40,875,664
Less allowance for loan losses 611,375
---------------
Loans, net 40,264,289
---------------
Premises and equipment 2,484,493
Other assets 913,895
---------------
Total assets $ 63,902,982
===============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Demand $ 16,860,925
Interest-bearing demand 8,632,023
Savings 3,813,937
Time 27,505,944
---------------
Total deposits 56,812,829
Note payable 183,500
Other liabilities 458,893
---------------
Total liabilities 57,455,222
---------------
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 1,576,904
Accumulated other comprehensive loss (450,024)
---------------
Total stockholders' equity 6,447,760
---------------
Total liabilities and stockholders' equity $ 63,902,982
===============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 1,096,784 $ 695,222 $ 2,056,601 $ 1,289,008
Taxable securities 110,794 156,975 226,458 330,665
Nontaxable securities 101,414 92,000 204,487 179,000
Federal funds sold 27,299 28,529 30,326 69,543
------------- ------------- ------------- --------------
Total interest income 1,336,291 972,726 2,517,872 1,868,216
Interest expense
Deposits 456,061 374,966 860,440 725,176
Other borrowings 3,128 - 5,602 -
------------- ------------- ------------- --------------
Total interest expense 459,189 374,966 866,042 725,176
Net interest income 877,102 597,760 1,651,830 1,143,040
Provision for loan losses - 45,000 126,742 60,000
------------- ------------- ------------- --------------
Net interest income after provision for loan losses 877,102 552,760 1,525,088 1,083,040
------------- ------------- ------------- --------------
Other income
Service charges on deposit accounts 349,052 284,548 650,514 543,764
Net realized losses on sale of securities - - (1,353) -
Other operating income 20,967 30,915 36,878 63,904
------------- ------------- ------------- --------------
Total other income 370,019 315,463 686,039 607,668
------------- ------------- ------------- --------------
Other expenses
Salaries and employee benefits 370,556 318,857 748,917 637,983
Occupancy and equipment expenses 156,228 78,831 304,153 163,040
Other operating expenses 275,275 267,011 525,813 558,431
------------- ------------- ------------- --------------
Total other expenses 802,059 664,699 1,578,883 1,359,454
------------- ------------- ------------- --------------
Net income before income taxes 445,062 203,524 632,244 331,254
Income tax expense 108,073 23,622 139,469 47,485
------------- ------------- ------------- --------------
Net income 336,989 179,902 492,775 283,769
------------- ------------- ------------- --------------
Other comprehensive income (loss)
Unrealized gains (losses) on securities available-for-sale
arising during period, net of tax 44,499 (266,326) (20,471) (365,637)
Reclassification adjustment for losses realized
in net income, net of tax - - 893 -
------------- ------------- ------------- --------------
Other comprehensive income (loss) 44,499 (266,326) (19,578) (365,637)
------------- ------------- ------------- --------------
Comprehensive income (loss) $ 381,488 $ (86,424) $ 473,197 $ (81,868)
============= ============= ============= ==============
Basic earnings per common share $ 0.63 $ 0.34 $ 0.93 $ 0.53
============= ============= ============= ==============
Diluted earnings per common share $ 0.57 $ 0.34 $ 0.83 $ 0.53
============= ============= ============= ==============
Cash dividends per share of common stock $ - $ - $ 0.10 $ -
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------ --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 492,775 $ 283,769
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 109,813 90,303
Provision for loan losses 126,742 60,000
Realized loss on sale of securities 1,353 -
Other operating activities 61,305 (149,610)
------------------ --------------------
Net cash provided by operating activities 791,988 284,462
------------------ --------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale - (5,572,549)
Proceeds from maturities of securities available-for-sale 945,045 5,055,257
Proceeds from sale of securities available-for-sale 223,621 -
Net (increase) decrease in Federal funds sold (1,445,000) 1,576,000
Net increase in loans (7,041,762) (6,454,876)
Purchase of premises and equipment (117,780) (183,532)
------------------ --------------------
Net cash used in investing activities (7,435,876) (5,579,700)
------------------ --------------------
FINANCING ACTIVITIES
Net increase in deposits 5,742,304 8,464,917
Proceeds from notes payable 86,200 -
Repayment of notes payable (18,175) -
Payment of dividends (53,209) -
------------------ --------------------
Net cash provided by financing activities 5,757,120 8,464,917
------------------ --------------------
Net increase (decrease) in cash and due from banks (886,768) 3,169,679
Cash and due from banks, beginning of period 2,378,710 2,136,219
------------------ --------------------
Cash and due from banks, end of period $ 1,491,942 $ 5,305,898
================== ====================
</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 six month periods ended
June 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 June 30, 2000 and
1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income $ 336,989 $ 179,902 $ 492,775 $ 283,769
============= ============ ============ =============
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 average market price for the period $ 60,280 $ - $ 60,280 $ -
------------- ------------ ------------ -------------
Total weighted average common shares and
common stock equivalents outstanding 592,638 532,088 592,638 532,088
============= ============ ============ =============
Diluted earnings per share $ 0.57 $ 0.34 $ 0.83 $ 0.53
============= ============ ============ =============
</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 $63.9 million, or 10.9% for the six
months ended June 30, 2000. The increase in total assets in 2000 is less than
the 17.2% growth for the same period in 1999. The growth in both years continues
to be funded by increases in total deposits, which increased by $5.8 million and
$8.5 million, respectively. The net increase in total assets for the six months
ended June 30, 2000 consisted primarily of an increase of $7.0 million in total
loans, a decrease of $887,000 in cash and due from banks, an increase in Federal
funds sold of $1.4 million, and a decrease in securities of $1.2 million. The
loan to deposit ratio at June 30, 2000 was 72% compared to 57% at June 30, 1999.
Total loans have increased by $12.6 million since June 30, 1999 which for the
same period, total deposits have increased by $7.0 million.
Stockholders' equity increased by $420,000 for the six months ended June 30,
2000. This net increase consists of net income of $493,000 less dividends
declared and paid of $53,000 and an increase in unrealized losses on securities
of $20,000.
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 June 30, 2000, the Bank's liquidity was considered satisfactory in relation
to regulatory guidelines and internal target ratios. The liquidity ratio was
22.92% at June 30, 2000.
REGULATORY CAPITAL REQUIREMENTS
Banking regulations require the Company and Bank to maintain minimum capital
levels in relation to assets. At June 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 June 30, 2000 are as follows:
Regulatory
Minimum
Company Bank Requirement
Leverage Capital Ratio 10.79% 10.99% 4.00%
Risk-Based Capital Ratios
Core Capital 14.30% 14.56% 4.00%
Total Capital 15.55% 15.81% 8.00%
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 $279,000 and $509,000 for
the quarter and six month period ended June 30, 2000, respectively, compared to
the same period in 1999. The increase in net interest income for both periods
ended June 30, 2000 is attributable to an increase in earning assets of $7.0
million as compared to June 30, 1999. As noted above, loans increased during
this period by $7.0 million, which generally provide greater yields to the
Company. The yield on total loans for the six months ended June 30, 2000 is
approximately 11.00%. During this same period, total deposits increased by $7.0
million, which included an increase of $10.8 million in interest-bearing
deposits offset by a decrease 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.
The net interest margin improved to 5.89% at June 30, 2000 as compared to 4.84%
at June 30 1999.
9
<PAGE>
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 six month period ending
June 30, 2000 based upon this evaluation process as compared to $60,000 for the
same period in 1999. The allowance for loan loss as a percentage of total loans
was 1.50% at June 30, 2000 and December 31, 1999, compared to .93% at June 30,
1999. There were no nonperforming loans as of June 30, 2000. Management believes
the allowance for loan loss at June 30, 2000 is adequate to meet any future
losses in the loan portfolio. The increase in the provision for the six months
ended June 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 June 30, 2000 due primarily to a decrease of $224,000 in past due
loans greater than 90 days and a reduction in net charge-offs.
At June 30, 2000 and 1999, nonaccrual, past due, and restructured loans were as
follows:
June 30, June 30,
2000 1999
----------- ----------
(Dollars in thousands)
Total nonaccruing loans $ - $ 6
Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing 50 10
Restructured loans - -
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
June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
2000 1999
-------------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Average amount of loans outstanding $ 37,481 $ 24,606
==================== ==================
Balance of allowance for loan losses at beginning of period $ 508 $ 300
Loans charged off
Commercial and financial (7) (9)
Real estate (34) (10)
Installment (46) (130)
-------------------- ------------------
(87) (149)
-------------------- ------------------
Loans recovered
Commercial and financial 3 5
Real estate 3 -
Installment 57 46
-------------------- ------------------
63 51
-------------------- ------------------
Net charge-offs (24) (98)
-------------------- ------------------
Additions to allowance charged to operating expense during period 127 60
-------------------- ------------------
Balance of allowance for loan losses at end of period 611 262
==================== ==================
Ratio of net loans charged-off during the
period to average loans outstanding .06% .40%
==================== ==================
</TABLE>
Other Income. Other income increased by $55,000 and $78,000 for the quarter and
six months ended June 30, 2000, respectively, compared to the same period in
1999. The single most significant difference which affected both periods was
increases of $65,000 and $84,000 in service charges on deposit accounts for 2000
and 1999, respectively.
Other Expenses. Other expenses increased by $137,000 and $219,000 for the three
and six months ended June 30, 2000 as compared to the same period in 1999. The
most significant increases in 2000 are increases of $111,000 in salaries and
employee benefits and an increase of $141,000 in equipment and occupancy
expenses for the six month period ended June 30, 2000. During the same period,
other operating expenses decreased by $33,000. The increase in salaries and
employee benefits for both the three and six month periods represents normal
increases in salaries and an increase in the number of employees. At June 30,
2000, the number of full-time equivalent employees was 43 compared to 41 at June
30, 1999.
11
<PAGE>
The increase in occupancy and equipment expenses for the six months ended June
30, 2000 is primarily attributable to increases in depreciation expense,
property taxes, maintenance and rent which increased $20,000, $28,000, $6,000
and $8,000, respectively.
Income Taxes. Income tax expense increased by $84,000 and $92,000 for the
quarter and six months ended June 30, 2000 as compared to 1999. The effective
tax rate for 2000 and 1999 was 22% and 14%, respectively. The effective tax rate
is significantly less than the statutory tax rate due to nontaxable interest
income on securities.
Net Income. Net income increased by $157,000 and $209,000 for the three and six
months ended June 30, 2000 as compared to the same period 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 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of Capitol City Bancshares, Inc.
was held on June 22, 2000. A total of 302,371 of the shares issued and
outstanding registered for the meeting either in person or by proxy.
The results of the meeting were as follows:
(a) The following directors were elected:
Directors For Against Abstain
--------- --- ------- -------
George G. Andrews 302,371 - -
Dr. Gloria Campbell D'Hue 302,371 - -
J. Al Cochran 302,371 - -
Keith E. Evans 302,371 - -
Leon Goodrum 302,371 - -
Agnes H. Harper 302,371 - -
Charles W. Harrison 302,371 - -
Robert A. Holmes 302,371 - -
Moses M. Jones 302,371 - -
Marian S. Jordan 302,371 - -
Kaneta R. Lott 302,371 - -
Donald F. Marshall 302,371 - -
George C. Miller, Jr. 302,371 - -
Elvin Mitchell, Sr. 302,371 - -
Roy W. Sweat 302,371 - -
William Thomas 302,371 - -
Cordy T. Vivian 302,371 - -
(b) The Capitol City Bancshares, Inc. Stock Option Plan was approved.
For Against Abstain
--- ------- -------
Stock Option Plan 300,821 1,550 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10. Stock Option Plan.
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: August 11, 2000 /s/ George G. Andrews
------------------- ---------------------------
George G. Andrews
President and Director
Date: August 11, 2000 /s/ Kevin M. Sharpe
-------------------- ---------------------------
Kevin M. Sharpe
Vice President and
Chief Financial Officer
14
