SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2000

Commission File Number 33-46573

CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its Charter)

5520 Monroe Street, Sylvania, OH 43560
(Address of principal executive offices and zip code)

(419) 885-7379
(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.

      As of June 30, 2000, there were 7,051,425 shares of common stock outstanding.

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CAPITAL HOLDINGS, INC.

Index

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CAPITAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

      See accompanying notes.

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CAPITAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

      See accompanying notes.

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CAPITAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

		COMMON STOCK									TREASURY STOCK
		SHARES				AMOUNT				SHARES				AMOUNT
Balance at January 1, 2000			7,037,222			$	1,175,216
Net income
Net unrealized loss on securities available for sale, net of tax effect of $322,000
Comprehensive Income
Exercise of common stock options, including tax benefit			6,990				1,168
Issuance of common stock			7,397				1,235
Treasury shares acquired											(184	)			(5,336	)
Cash dividend declared, $.18 per share
Balance at June 30, 2000			7,051,609			$	1,177,619				(184	)			($5,336	)
Balance at January 1, 1999			6,049,224			$	1,008,204
Net income
Net unrealized loss on securities available for sale, net of tax effect of $2,096,000
Comprehensive Income
Exercise of common stock options, including tax benefit			14,202				2,367
Issuance of common stock			14,097				2,350
Treasury shares acquired											(9,000	)			(180,000	)
Treasury shares issued											9,000				180,000
Cash dividend declared, $.16 per share
Balance at June 30, 1999			6,077,523			$	1,012,921				0			$	0

[Additional columns below]

[Continued from above table, first column(s) repeated]

										ACCUMULATED
		CAPITAL IN								OTHER				TOTAL
		EXCESS OF				RETAINED				COMPREHENSIVE				SHAREHOLDERS'
		STATED VALUE				EARNINGS				(LOSS) INCOME				EQUITY
Balance at January 1, 2000		$	60,222,913			$	28,601,206				($3,887,371	)		$	86,111,964
Net income							5,635,918								5,635,918
Net unrealized loss on securities available for sale, net of tax effect of $322,000											(624,439	)			(624,439	)
Comprehensive Income															5,011,479
Exercise of common stock options, including tax benefit			98,340												99,508
Issuance of common stock			191,687												192,922
Treasury shares acquired															(5,336	)
Cash dividend declared, $.18 per share							(1,269,169	)							(1,269,169	)
Balance at June 30, 2000		$	60,512,940			$	32,967,955				($4,511,810	)		$	90,141,368
Balance at January 1, 1999		$	34,201,997			$	21,197,999			$	2,014,013			$	58,422,213
Net income							4,360,220								4,360,220
Net unrealized loss on securities available for sale, net of tax effect of $2,096,000											(4,067,808	)			(4,067,808	)
Comprehensive Income															292,412
Exercise of common stock options, including tax benefit			211,094												213,461
Issuance of common stock			281,816												284,166
Treasury shares acquired															(180,000	)
Treasury shares issued															180,000
Cash dividend declared, $.16 per share							(972,112	)							(972,112	)
Balance at June 30, 1999		$	34,694,907			$	24,586,107				($2,053,795	)		$	58,240,140

      See accompanying notes.

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CAPITAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

      See accompanying notes.

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CAPITAL HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2000

Basis Of Presentation

      The unaudited consolidated financial statements include the accounts of Capital Holdings, Inc. (the Company) and its wholly-owned subsidiaries, Capital Bank, N.A. (the Bank) and CBNA Building Company, which is a real estate subsidiary that owns and leases to the Bank, its only operating facility. The Bank conducts business in northwestern Ohio and southeastern Michigan as a national banking association and focuses on corporate, executive and professional customers, with the primary emphasis on deposits from and commercial loans to businesses and professionals. The Company operates primarily in one business segment as a focused commercial business lender.

      The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from those estimates. For further information refer to the consolidated financial statements and notes thereto appearing in the Company’s annual report on Form 10-K for the year ended December 31, 1999.

      The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities.

      The Bank’s maximum exposure to credit losses for loan commitments and standby letters of credit outstanding at June 30, 2000 was $307,064,000 and $32,636,000, respectively, compared to $287,875,000 and $32,459,000, respectively, at December 31, 1999. The increase in loan commitments is due to the increased activity from corporate borrowers as well as from the increase in owner-occupied commercial real estate construction.

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CAPITAL HOLDINGS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

      The following discussion and related financial data for the Company provides an overview of the financial condition and results of operations of the Company and its subsidiaries. The principal subsidiary of the Company is Capital Bank, N.A., which is in its eleventh year of operation and had total assets of $1,078,266,000 at June 30, 2000.

      Consolidated net income for the first six months of 2000 was $5,636,000 compared to $4,360,000 for the first six months of 1999, representing a 29.3% increase. For the second quarter, the Company had net income of $2,857,000, an increase of 25.4% compared to earnings of $2,278,000 in the second quarter of 1999. The increase in net income was a direct result of a 21.0% growth in earning assets from June 30, 1999 to June 30, 2000, continued high credit quality and a continued emphasis on maintaining a high level of operating efficiency.

      For the first six months of the year compared to the same period last year, basic and diluted earnings per share grew 11% and 10%, respectively. For the second quarter, basic and diluted earnings per share grew 11% and 8%, respectively, compared to the second quarter in 1999. The Company raised additional capital through a stock offering in the fourth quarter of 1999 increasing the number of shares outstanding by 15%. As a result, the percentage change in earnings per share was less than the percentage change in net income. Return on average assets was 1.10% and return on average equity was 12.97% for the quarter. This compares to 1.06% and 15.10%, respectively, for the second quarter in 1999.

Balance Sheet Analysis

      Loan growth, net of participations sold, for the second quarter of 2000 was $39,912,000 or 5.2%. Additional loan participations of approximately $7,800,000 were sold during the quarter. On an annualized basis, loan growth was 20.8% for the quarter. This compares to 24.8% annualized growth since December 31, 1999, and 22.7% growth since June 30, 1999. The increase in loans occurred primarily from strong loan demand and business development efforts. The allowance for loan losses at June 30, 2000, was $11,589,000 or 1.43% of total loans, compared to 1.45% of total loans at December 31, 1999 and 1.40% of total loans at June 30, 1999. The allowance for loan losses is the estimated amount, which in the opinion of management, will be adequate to absorb potential loan losses in the loan portfolio. No loans were charged off during the second quarter of 2000. Loans over 90 days past due as to principal and interest and still in an accrual status were less than $12,000 at quarter end. There were no nonaccruing loans at quarter end.

      Investment securities available for sale totaled $227,372,000 or 21.1% of total assets at June 30, 2000, and $197,028,000 or 22.1% of total assets at June 30, 1999. The investment quality of the securities portfolio remains very high with 83.0% of the portfolio comprised of U.S. Treasury and Agency securities. The Bank has no

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CAPITAL HOLDINGS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – CONTINUED

investments in high-risk derivative instruments. The Bank’s portfolio has a weighted average adjusted maturity of approximately 4.6 years. Due to the general rise in interest rates, the total market value of the portfolio decreased $624,000 (net of tax) during the six months ended June 30, 2000.

      The Company uses a combination of funding sources to facilitate the growth in earning assets. Average deposits for the second quarter of 2000, excluding brokered deposits, grew $72,007,000 over the second quarter of 1999. Average brokered certificates of deposits for the quarter grew $49,734,000 from the same period a year ago. The average balance of other borrowings for the quarter grew $34,300,000 from the second quarter of last year, primarily from an increase in federal funds purchased.

Results Of Operations

      Net interest income for the second quarter of 2000 was $8,420,000 compared to $7,150,000 for the second quarter of 1999, representing a 17.8% increase. Net interest income for the first half of 2000 was $16,552,000 compared to $13,730,000 for the first half of 1999, representing a 20.6% increase. The quarter and year-to-date increases in net interest income were due largely to a higher volume of loans in 2000 compared to the same periods last year. The net interest margin on a fully tax equivalent basis for the first half of 2000 was 3.43%, compared to 3.46% for the first half of 1999. The modest decrease in the margin was due principally to the rise in the average cost of liabilities, driven by Federal Reserve rate increases since June 1999, slightly outpacing the increase in the average yield on earning assets.

      The provision for loan losses for the second quarter of 2000 was $490,000 compared to $600,000 during the second quarter of 1999. The provision expense for the quarter maintained the loan loss reserve ratio at 1.43% at quarter-end compared to 1.40% at the end of the second quarter last year. The provision for loan losses for the first half of 2000 was $1,120,000 compared to $1,125,000 during the first half of 1999.

      Non-interest expenses of the Company have increased in absolute dollars to support the continued growth of the Bank. Non-interest expenses were 13.0% higher in the second quarter of 2000 and 11.9% higher for the first half of 2000 compared to the same periods last year. By comparison, net revenues grew significantly more at 17.3% for the second quarter and 19.4% for the first half of 2000 compared to the same periods last year. As a percentage of average assets, non-interest expenses have decreased slightly from 1.66% for the year ended December 31, 1999, to 1.59% for the six months ended June 30, 2000. The Company’s efficiency ratio was 46% for the first half of 2000,

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CAPITAL HOLDINGS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – CONTINUED

which is significantly better than the national peer benchmark of 61%. Salaries and benefits represented 52.5% of other expenses for the second quarter of 2000, compared to 53.5% for the second quarter of 1999. Salaries and benefits expense for the three months ended June 30, 2000 increased 11.1% over the same period for 1999 and 13.5% for the first half of 2000 compared to the same period last year. These increases were due to a higher staffing level to support earning asset growth of the bank, a generally higher cost for employee benefits and normal increases in compensation. Total assets per employee have increased from $7,728,000 at December 31, 1999, to $8,102,000 at June 30, 2000.

      Other non-interest expenses, excluding salaries and benefits, increased 15.3% for the second quarter of 2000 and 10.0% for the first half of 2000 compared to the same periods last year. The overall rise in these expenses has been due, in part, to increases in volume related expenses such as deposit courier services, FDIC premiums and merchant charge card services.

Capital

      The Company places significant emphasis on the maintenance of strong capital, which promotes investor confidence and enhances business growth opportunities. As of June 30, 2000, the Company had a Total Risk-Based Capital ratio of 11.92%, a Tier 1 Risk-Based Capital ratio of 10.67%, and a Tier 1 Leverage Capital ratio of 8.96%. This compares to regulatory capital requirements of 10%, 6% and 5%, respectively for a well capitalized institution. At the Bank level, the Total Risk-Based Capital ratio was 10.97%, the Tier 1 Risk-Based Capital ratio was 7.02%, and the Tier 1 Leverage Capital ratio was 5.92% at June 30, 2000.

      Shareholders’ equity has continued to increase from retained earnings of net income. Cash dividends declared represented approximately 22.5% of net income for the first half of 2000. A $.09 per share cash dividend was declared on June 30 and March 31, 2000, payable July 25 and April 25, 2000, respectively.

      The Company previously announced in the second quarter that the Board of Directors had approved a common stock repurchase program. The program authorizes the repurchase of up to $3,000,000 of the Company’s common stock over a one-year period. The Company’s total market capitalization at June 30, 2000, was approximately $184.2 million. Total equity was 8.36% of total assets at quarter end.

      In June 1999, a three-for-one stock split was declared and payable July 15, 1999. All earnings per share and cash dividend per share numbers, average and actual shares outstanding and the par value of common stock shares have been retroactively restated to reflect this three-for-one stock split.

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CAPITAL HOLDINGS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – CONTINUED

Other

      In June 1998, the FASB issued Statement No. 133. “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 establishes accounting and reporting standards for hedging activities and for derivative instruments, including certain derivative instruments embedded in other contracts. This statement requires a company to recognize all derivatives as either assets or liabilities in its balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (i.e. gains and losses) depends on the intended use of the derivative and the resulting designation. With the issuance of FASB Statement No. 137, the effective date of FASB Statement No. 133 changes to include all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB issued Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133” which provides various technical clarifications to the previous guidance. Presently the Company does not utilize derivative or related types of financial instruments except for certain Federal agency collateralized mortgage obligations. Therefore, this Statement is not anticipated to have a material impact on the Company.

Forward-Looking Statements

      The Private Securities Litigation Reform Act of 1995 was passed by Congress to encourage corporations to provide investors with information about its anticipated future financial performance, goals and strategies. The act provides a safe harbor for such disclosure, or in other words, protection from unwarranted litigation, if actual results are not the same as management’s expectations.

      The Company desires to provide its shareholders with sound information about past performance and future trends. Consequently, this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements including certain plans, expectations, goals and projections that are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by the Company’s statements due to a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; material unforeseen changes in the financial condition or results of operations of the Company’s customers; and the nature, extent and timing of governmental actions and reforms. The management of the Company encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute targets of performance.

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CAPITAL HOLDINGS, INC.

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

      At the Annual Shareholders Meeting held on May 18, 2000, pursuant to the Notice of Annual Meeting and Proxy Statement dated April 14, 2000:

Item 6. Exhibits and Reports on Form 8-K

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SIGNATURES

      Pursuant to the requirements for 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.

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