<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 March 31, 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 May 1, 2000: 532,088; $6 par value
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of March 31, 2000..................................................................... 3
Condensed Consolidated Statements of Income and
Comprehensive Income for the Three Months Ended
March 31, 2000 and 1999............................................................... 4
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K.................................................... 13
Signatures................................................................................... 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(Unaudited)
Assets
------
Cash and due from banks $ 5,733,776
Securities available-for-sale, at fair value 16,892,144
Loans 38,302,709
Less allowance for loan losses 574,541
----------------
Loans, net 37,728,168
----------------
Premises and equipment 2,446,624
Other assets 895,907
----------------
Total assets $ 63,696,619
================
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Demand $ 19,153,476
Interest-bearing demand 7,155,289
Savings 3,660,255
Time 27,188,402
----------------
Total deposits 57,157,422
Other liabilities 299,241
Note payable 173,684
----------------
Total liabilities 57,630,347
----------------
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 1,239,915
Accumulated other comprehensive loss (494,523)
----------------
Total stockholders' equity 6,066,272
----------------
Total liabilities and stockholders' equity $ 63,696,619
================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------
2000 1999
----------------------- -----------------------
<S> <C> <C>
Interest income
Loans $ 959,817 $ 593,786
Taxable securities 115,664 149,425
Nontaxable securities 103,073 111,265
Federal funds sold 3,027 41,014
---------------------- ----------------------
Total interest income 1,181,581 895,490
---------------------- ----------------------
Interest expense
Deposits 404,379 350,210
Other borrowings 2,474 -
---------------------- ----------------------
406,853 350,210
---------------------- ----------------------
Net interest income 774,728 545,280
Provision for loan losses 126,742 15,000
---------------------- ----------------------
Net interest income after provision for loan losses 647,986 530,280
---------------------- ----------------------
Other income
Service charges on deposit accounts 301,462 259,216
Net realized losses on sale of securities (1,353) -
Other operating income 15,911 32,989
---------------------- ----------------------
Total other income 316,020 292,205
---------------------- ----------------------
Other expenses
Salaries and other employee benefits 378,361 319,126
Occupancy and equipment expenses 147,925 113,060
Other operating expenses 250,538 262,569
---------------------- ----------------------
Total other expenses 776,824 694,755
---------------------- ----------------------
Net income before income taxes 187,182 127,730
Income tax expense 31,396 23,863
---------------------- ----------------------
Net income 155,786 103,867
---------------------- ----------------------
Other comprehensive loss
Unrealized losses on securities available-for-sale
arising during period, net of tax (65,200) (99,311)
Reclassification adjustment for losses realized
in net income, net of tax 1,123 0
---------------------- ----------------------
Other comprehensive loss (64,077) (99,311)
---------------------- ----------------------
Comprehensive income $ 91,709 $ 4,556
====================== ======================
Basic earnings per common share $ 0.29 $ 0.20
====================== ======================
Diluted earnings per common share 0.26 0.20
====================== ======================
Cash dividends per share of common stock $ 0.10 $ 0
====================== ======================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------------- -------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 155,786 $ 103,867
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 53,209 45,799
Provision for loan losses 126,742 15,000
Realized loss on securities 1,353 -
Other operating activities (110,643) (204,550)
---------------------- ------------------------
Net cash provided by (used in) operating activities 226,447 (39,884)
---------------------- ------------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale - (4,499,082)
Proceeds from maturities of securities available-for-sale 748,840 1,703,117
Proceeds from sale of securities available-for-sale 223,621 -
Net decrease in Federal funds sold 540,000 105,000
Net increase in loans (4,505,641) (2,071,398)
Purchase of premises and equipment (23,307) (97,449)
---------------------- ------------------------
Net cash used in investing activities (3,016,487) (4,859,812)
---------------------- ------------------------
FINANCING ACTIVITIES
Net increase in deposits 6,086,897 5,175,375
Proceeds from note payable 58,209 -
---------------------- ------------------------
Net cash provided by financing activities 6,145,106 5,175,375
---------------------- ------------------------
Net increase in cash and due from banks 3,355,066 275,679
Cash and due from banks, beginning of period 2,378,710 2,136,219
---------------------- ------------------------
Cash and due from banks, end of period $ 5,733,776 $ 2,411,898
====================== ========================
</TABLE>
The accompanying notes are an integral part of these condensed 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 month period ended March 31,
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 March 31, 2000 and
1999.
<TABLE>
<CAPTION>
Periods Ended March 31,
-----------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Net income $ 155,786 $ 103,867
=============== ================
Weighted average common shares outstanding 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 $ -
--------------- ----------------
Total weighted average common shares and
common stock equivalents outstanding 592,638 532,088
=============== ================
Diluted earnings per share $ 0.26 $ 0.20
=============== ================
</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 during the first quarter of 2000 from $57.6 million to
$63.7 million, or 10.6% for the quarter. The increase in total assets in 2000 is
consistent with the 10.5% growth for the same period in 1999. The growth in both
years continues to be funded by increases in total deposits, which increased by
$6.1 million and $5.2 million, respectively. The increase in total assets for
the quarter ended March 31, 2000 consisted primarily of an increase of $4.4
million in loans and an increase of $3.3 million in cash and due from banks.
These increases in assets were offset by decreases in Federal funds sold and
securities of $540,000 and $1,071,000, respectively. The loan to deposit ratio
at March 31, 2000 was 67% compared to 51% at March 31, 1999. Total loans have
increased by $14.4 million since March 31, 1999 which for the same period, total
deposits have increased by $10.6 million.
Stockholders' equity increased by $38,500 for the quarter ended March 31, 2000.
This net increase consisted of net income of $156,000 less dividends of $53,000
and unrealized losses on securities of $64,000.
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 March 31, 2000, the Bank's liquidity was considered satisfactory in relation
to regulatory guidelines and internal target ratios. The liquidity ratio was
24.14% at March 31, 2000.
REGULATORY CAPITAL REQUIREMENTS
Banking regulations require the Company and Bank to maintain minimum capital
levels in relation to assets. At March 31, 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 March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Regulatory
Company Bank Requirement
<S> <C> <C> <C>
Leverage Capital Ratio 11.14% 11.28% 4.00%
Risk-Based Capital Ratios
Core Capital 14.26% 14.44% 4.00%
Total Capital 15.51% 15.69% 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
Three Months Ended March 31, 2000 and 1999
Net Interest Income. Net interest income increased by $229,000 for the quarter
ended March 31, 2000 compared to the same period in 1999, or by 42.08%. The
comparable increase in 1999 was $102,000, or 23.01%. The increase in net
interest income for the quarter ended March 31, 2000 is attributable to an
increase in earning assets of $7.6 million as compared to March 31, 1999. As
noted above, loans increased during this period by $14.4 million, which
generally provide greater yields to the Company. During this same period, total
deposits increased by $10.6 million, of which $9.7 million was 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 was 5.75% and 4.74% at March 31, 2000 and 1999,
respectively.
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 three month period ending
March 31, 2000 based upon this evaluation process as compared to $15,000 for the
same period in 1999. The allowance for loan loss as a percentage of total loans
was 1.50% at March 31, 2000 compared to 1.03% at March 31, 1999. There were no
nonperforming loans as of March 31, 2000. Management believes the allowance for
loan loss at March 31, 2000 is adequate to meet any future losses in the loan
portfolio. The increase in the provision in 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.
At March 31, 2000 and 1999, nonaccrual, past due, and restructured loans were as
follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Total nonaccruing loans $ - $ 7
Loans contractually past due ninety days
or more as to interest or principal
payments and still accruing 274 -
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
March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
2000 1999
-------------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Average amount of loans outstanding $ 35,678 $ 22,668
==================== ==================
Balance of allowance for loan losses at beginning of period $ 508 $ 299
Loans charged off
Commercial and financial (7) (9)
Real estate (34) -
Installment (43) (88)
-------------------- ------------------
(84) (97)
-------------------- ------------------
Loans recovered
Commercial and financial 3 3
Real estate 1 -
Installment 19 25
-------------------- ------------------
23 28
-------------------- ------------------
Net charge-offs (61) (69)
-------------------- ------------------
Additions to allowance charged to operating expense during period 127 15
-------------------- ------------------
Balance of allowance for loan losses at end of period 574 245
==================== ==================
Ratio of net loans charged-off during the
period to average loans outstanding .17% .30%
==================== ==================
</TABLE>
Other Income. Other income increased by $24,000 for the quarter ended March 31,
2000 compared to an increase of $28,000 for the same period in 1999. The single
most significant difference which affected both periods was increases of $42,000
and $50,000 in service charges on deposit accounts for 2000 and 1999,
respectively.
Other Expenses. Other expenses increased by $82,000, or 11.81% for the three
months ended March 31, 2000 as compared to the same period in 1999. The increase
in 1999 as compared to the same period in 1998 was $201,000. The most
significant increases in 2000 are increases of $59,000 in salaries and employee
benefits and an increase of $35,000 in equipment and occupancy expenses. During
the same period, other operating expenses decreased by $12,000. The increase in
salaries and employee benefits represents normal increases in salaries and an
increase in employees. At March 31, 2000, the number of full-time equivalent
employees was 41 compared to 35 at March 31, 1999. The increase in equipment and
occupancy expenses included increased depreciation, property taxes, and
utilities related to the new branch opened in December 1998.
11
<PAGE>
Income Taxes. Income tax expense increased by $8,000 for the three months ended
March 31, 2000 as compared to 1999. The effective tax rate for 2000 and 1999 was
17% and 19%, respectively.
Net Income. Net income increased by $52,000 for the three months ended March 31,
2000 as compared to the same period in 1999. The primary reason for the increase
is the increase in net interest income combined with moderate increases in other
expenses.
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: May 15, 2000 /s/ George G. Andrews
------------ -----------------------------
George G. Andrews
President and Director
Date: May 15, 2000 /s/ Kevin M. Sharpe
------------ -----------------------------
Kevin M. Sharpe
Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 2000
FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,734
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,892
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 38,303
<ALLOWANCE> 574
<TOTAL-ASSETS> 63,697
<DEPOSITS> 57,157
<SHORT-TERM> 174
<LIABILITIES-OTHER> 299
<LONG-TERM> 0
0
0
<COMMON> 3,193
<OTHER-SE> 2,874
<TOTAL-LIABILITIES-AND-EQUITY> 63,697
<INTEREST-LOAN> 960
<INTEREST-INVEST> 219
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 1,182
<INTEREST-DEPOSIT> 404
<INTEREST-EXPENSE> 407
<INTEREST-INCOME-NET> 775
<LOAN-LOSSES> 127
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 777
<INCOME-PRETAX> 187
<INCOME-PRE-EXTRAORDINARY> 187
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-BASIC> .29
<EPS-DILUTED> .26
<YIELD-ACTUAL> 5.75
<LOANS-NON> 0
<LOANS-PAST> 274
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 508
<CHARGE-OFFS> 84
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 574
<ALLOWANCE-DOMESTIC> 574
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 574
</TABLE>
