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EX-32.2 - SECTION 906 CFO CERTIFICATION - CAPITOL CITY BANCSHARES INCdex322.htm
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EX-32.1 - SECTION 906 CEO CERTIFICATION - CAPITOL CITY BANCSHARES INCdex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATIONS - CAPITOL CITY BANCSHARES INCdex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

 

¨ TRANSITION REPORT UNDER 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 issuer as specified in its charter)

 

 

 

Georgia   58 - 2452995

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer    ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company    þ

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 15, 2011; 9,809,056; $1.00 par value.

 

 

 


Table of Contents

INDEX

 

         Page  
Part I. Financial Information   
  Item 1. Financial Statements (unaudited)   
 

Condensed Consolidated Balance Sheets
as of March 31, 2011 and December 31, 2010

     2   
 

Condensed Consolidated Statements of Income and
Comprehensive Income for the Three Months
Ended March 31, 2011 and 2010

     3   
 

Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March  31, 2011 and 2010

     4   
 

Notes to Condensed Consolidated Financial Statements

     5 - 27   
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations      28 - 35   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk      35   
  Item 4. Controls and Procedures      35   
Part II. Other Information   
  Item 1. Legal Proceedings      36   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds      36   
  Item 3. Defaults Upon Senior Securities      36   
  Item 4. (Removed and Reserved)      36   
  Item 5. Other Information      36   
  Item 6. Exhibits      36 - 37   
  Signatures      38   
  Certifications   


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2011 (unaudited) and December 31, 2010

 

     March 31, 2011     December 31,  
     (unaudited)     2010  
Assets     

Cash and due from banks

   $ 6,588,742      $ 5,345,394   

Interest-bearing deposits at other financial institutions

     456,539        454,968   

Federal funds sold

     6,315,000        730,000   

Securities available for sale

     41,099,111        37,012,468   

Restricted equity securities, at cost

     1,025,300        1,025,300   

Loans, net of unearned income

     233,805,685        235,545,772   

Less allowance for loan losses

     5,292,037        5,223,764   
                

Loans, net

     228,513,648        230,322,008   
                

Premises and equipment, net

     9,366,064        9,501,807   

Foreclosed real estate

     9,467,763        8,917,239   

Other assets

     2,150,372        1,999,543   
                

Total assets

   $ 304,982,539      $ 295,308,727   
                
Liabilities and Stockholders’ Equity     

Liabilities:

    

Deposits:

    

Noninterest-bearing

   $ 28,275,102      $ 24,624,361   

Interest-bearing

     256,593,275        250,657,934   
                

Total deposits

     284,868,377        275,282,295   

Federal funds purchased

     —          —     

Note payable

     275,250        275,250   

Federal Home Loan Bank advances

     5,500,000        5,500,000   

Securities sold under repurchase agreements

     —          —     

Company guaranteed trust preferred securities

     3,403,000        3,403,000   

Other liabilities

     1,525,287        1,606,277   
                

Total liabilities

     295,571,914        286,066,822   
                

Stockholders’ equity

    

Series A cumulative, non voting preferred stock, par value $100, 5,000,000 shares authorized; 16,078 shares issued and outstanding

     1,607,800        1,607,800   

Common stock, par value $1.00; 80,000,000 shares authorized; 9,809,056 and 9,777,656 shares issued and outstanding, respectively

     9,809,056        9,777,656   

Surplus

     122,430        75,330   

Accumulated deficit

     (1,750,015     (1,785,317

Accumulated other comprehensive loss

     (378,646     (433,564
                

Total stockholders’ equity

     9,410,625        9,241,905   
                

Total liabilities and stockholders’ equity

   $ 304,982,539      $ 295,308,727   
                

See Notes to Condensed Consolidated Financial Statements

 

2


Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Unaudited)

 

     Three Months Ended
March 31,
 
     2011      2010  

Interest income:

     

Loans, including fees

   $ 3,452,767       $ 3,955,704   

Deposits in banks

     615         3   

Securities

     219,065         318,717   

Federal funds sold

     1,654         46   
                 

Total interest income

     3,674,101         4,274,470   
                 

Interest expense:

     

Deposits

     1,456,316         1,992,311   

Other borrowings

     44,172         94,977   
                 

Total interest expense

     1,500,488         2,087,288   
                 

Net interest income

     2,173,613         2,187,182   

Provision for loan losses

     205,000         —     
                 

Net interest income after provision for loan losses

     1,968,613         2,187,182   
                 

Other income:

     

Service charges on deposit accounts

     340,740         341,629   

Other fees and commissions

     23,353         19,237   

Gains on sales of foreclosed real estate

     —           15,319   

Other operating income

     118,854         106,773   
                 

Total other income

     482,947         482,958   
                 

Other expenses:

     

Salaries and employee benefits

     913,976         971,884   

Occupancy and equipment expenses, net

     322,119         290,538   

Other operating expenses

     1,130,163         1,286,975   
                 

Total other expenses

     2,366,258         2,549,397   
                 

Income before income taxes

     85,302         120,743   

Income tax expense

     —           —     
                 

Net income

     85,302         120,743   
                 

Preferred stock dividends

     50,000         —     
                 

Net income available to common shareholders

     35,302         120,743   

Other comprehensive income

     

Unrealized gains on securities available for sale arising during period, net of tax

     54,918         102,527   

Reclassification adjustment for realized gains on securities available for sale arising during period, net of tax

     —           —     
                 

Comprehensive income

   $ 90,220       $ 223,270   
                 

Basic earnings per common share

   $ —         $ 0.01   
                 

Diluted earnings per common share

   $ —         $ 0.01   
                 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED March 31, 2011 AND 2010

(Unaudited)

 

     Three Months Ended
March 31,
 
     2011     2010  

OPERATING ACTIVITIES

    

Net income

   $ 85,302      $ 120,743   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation, amortization and accretion

     228,062        376,732   

Provision for loan losses

     205,000        —     

Other-than-temporary impairment of securities

     —          97,500   

Gain on sale of foreclosed real estate

     —          (15,319

Capitalized costs on foreclosed real estate

     —          (3,878

Writedowns of foreclosed real estate

     —          70,600   

Increase in proceeds receivable from sales of foreclosed real estate

     —          (1,128,016

Net other operating activities

     (281,819     (765,007
                

Net cash provided by (used in) operating activities

     236,545        (1,246,645
                

INVESTING ACTIVITIES

    

Purchases of securities available for sale

     (5,147,408     —     

Proceeds from maturities of securities available for sale

     1,023,364        4,619,249   

Net increase in interest-bearing deposits

     (1,571     (25,423

Net increase in federal funds sold

     (5,585,000     —     

Net (increase) decrease in loans

     1,052,836        (1,107,876

Purchase of premises and equipment

     —          (8,188
                

Net cash provided by (used in) investing activities

     (8,657,779     3,477,762   
                

FINANCING ACTIVITIES

    

Net increase in deposits

     9,586,082        1,778,931   

Net decrease in securities sold under repurchase agreements

     —          (2,439,663

Net decrease in federal funds purchased

     —          (2,795,000

Proceeds from issuance of common stock

     78,500        75,150   
                

Net cash provided by (used in) financing activities

     9,664,582        (3,380,582
                

Net increase (decrease) in cash and due from banks

     1,243,348        (1,149,465

Cash and due from banks, beginning of period

     5,345,394        7,647,982   
                

Cash and due from banks, end of period

   $ 6,588,742      $ 6,498,517   
                

SUPPLEMENTAL DISCLOSURES

    

Cash paid for:

    

Interest

   $ 1,618,139      $ 2,496,520   

NONCASH TRANSACTIONS

    

Principal balances of loans transferred to foreclosed real estate

   $ 550,524      $ 1,598,197   

Financed sales of foreclosed real estate

   $ —        $ 930,738   

See Notes to Condensed Consolidated Financial Statements

 

4


Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1. BASIS OF PRESENTATION

The consolidated financial information included for Capitol City Bancshares, Inc. (the “Company”), Capitol City Bank & Trust Company (the “Bank”) and Capitol City Home Loans (the “Mortgage Company”) 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. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The results of operations for the three month periods ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year.

Management has evaluated all significant events and transactions that occurred after March 31, 2011, but prior to May 13, 2011, the date these condensed consolidated financial statements were issued, for potential recognition or disclosure in these condensed consolidated financial statements.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash, Due From Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks include cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, interest-bearing deposits at other financial institutions, federal funds sold, Federal Home Loan Bank advances, deposits and securities sold under repurchase agreements are reported net.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (Continued)

This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make changes to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For impaired loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general components cover unimpaired loans and are based on historical loss experience adjusted for qualitative factors, such as the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Unsecured loans – Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. The overall health of the economy, including unemployment rates will have an effect on the credit quality in the segment.

Cash value loans – Loans in this segment are fully secured by cash or cash equivalents.

Residential real estate loans – Loans in this segment include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Commercial real estate loans – Loans in this segment includes all mortgages and other liens on commercial real estate. The underlying cash flows generated by the properties are adversely impacted by a downtown in the economy as evidences by increased vacancy rates, which in turn will have an effect on the credit quality in this segment.

 

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Table of Contents

CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (Continued)

Business assets loans – Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory and accounts receivable. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending will have an effect on the credit quality in this segment.

Vehicle loans – Loans in this segment are made to individuals and are secured by motor vehicles. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Other loans – Loans in this segment are generally secured consumer loans, but include all loans that do not belong in one of the other segments. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rate will have an effect on the credit quality in the segment.

Income Taxes (Benefits)

The Company accounts for income taxes in accordance with income tax accounting guidance (FASB ASC 740, Income Taxes). This guidance sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions.

The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes (Benefits) (Continued)

In accordance with ASC 740-10 Income Taxes it is the Bank’s policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes and to disclose the recognized interest and penalties, if material. Management has evaluated all tax positions that could have a significant effect on the financial statements and determined the Bank had no uncertain tax positions at March 31, 2011. Further, all years subsequent to 2007 remain subject to evaluation.

 

NOTE 3. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS

Regulatory Actions

In January 2010, the Bank received a consent order (“order”) from the Federal Deposit Insurance Corporation (“FDIC”) and the Georgia Department of Banking and Finance (“The Department”).

The Order is a formal corrective action pursuant to which the Bank has agreed to address specific issues set forth below, through the adoption and implementation of procedures, plan and policies designed to enhance the safety and soundness of the Bank. Contained in the order were various reporting requirements by management and the Board of Directors. In addition, the order requires that the Bank achieve and maintain the following minimum capital levels:

(i) Tier I capital at least equal to 8% of total average assets;

(ii) Total risk-based capital at least equal to 10% of total risk-weighted assets.

Additional requirements include, but are not limited to, reducing the levels of classified assets, prohibition of the acceptance, renewal, or rollover of brokered deposits, reducing concentrations of credit, prohibition of paying dividends, and maintaining an adequate allowance for loan losses.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS (Continued)

Going Concern Considerations

The condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. The Company’s ability to continue as a going concern is contingent upon its ability to obtain the capital necessary to sustain profitable operations, implementing a management plan to develop a profitable operation, overcoming and satisfying the requirements of the regulatory order described above, and lowering the level of problem assets to an acceptable level.

In this regard, management has developed a capital plan, which includes, but is not limited to: (1) actively working to reduce assets as well as the overall concentrations in acquisition, development, and construction lending and commercial real estate lending, (2) reducing adversely classified assets, (3) maintaining a Tier 1 leverage capital ratio of not less than 8%, (4) maintaining a total risk-based capital ratio of not less than 10%, (5) maintaining an adequate allowance for loan losses, (6) actively working to improve its liquidity while reducing its reliance on wholesale deposit funding and increasing core deposit levels, and (7) continuing to sell the Company’s common stock through the secondary offering.

The continuing level of problem loans as of the quarter ended March 31, 2011 and capital levels continuing to be in the “under capitalized” category of the regulatory framework for prompt corrective action as of March 31, 2011 continue to create substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that any capital raising activities or other measures will allow the Bank to meet the capital levels required in the Order. Non-compliance with the capital requirements of the Order and other provisions of the Order may cause the Bank to be subject to further enforcement actions by the FDIC or the Department. The events and circumstances described herein create a substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4. SECURITIES

The amortized cost and fair value of securities with gross unrealized gains and losses are summarized as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2011

          

U.S. Government sponsored enterprises (GSEs)

   $ 554,608       $ 2,495       $ —        $ 557,103   

State, county, and municipal securities

     2,352,450         —           (119,434     2,233,016   

Mortgage-backed securities GSE residential

     37,892,824         92,465         (354,172     37,631,117   

Trust preferred securities

     627,875         —           —          627,875   
                                  

Total debt securities

     41,427,757         94,960         (473,606     41,049,111   

Equity securities

     50,000         —           —          50,000   
                                  

Total securities

   $ 41,477,757       $ 94,960       $ (473,606   $ 41,099,111   
                                  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

December 31, 2010:

          

U.S. Government sponsored enterprises (GSEs)

   $ 582,112       $ 1,579       $ —        $ 583,691   

State, county, and municipal securities

     2,353,058         —           (145,326     2,207,732   

Mortgage-backed securities GSE residential

     33,832,986         88,554         (378,370     33,543,170   

Trust preferred securities

     627,875         —           —          627,875   
                                  

Total debt securities

     37,396,031         90,133         (523,696     36,962,468   

Equity securities

     50,000         —           —          50,000   
                                  

Total securities

   $ 37,446,031       $ 90,133       $ (523,696   $ 37,012,468   
                                  

The amortized cost and fair value of debt securities as of March 31, 2011 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Amortized
Cost
     Fair
Value
 

Due from five to ten years

   $ 1,552,133       $ 1,509,857   

Due after ten years

     1,982,800         1,908,137   

Mortgage-backed securities

     37,892,824         37,631,117   
                 
   $ 41,427,757       $ 41,049,111   
                 

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4. SECURITIES (Continued)

Securities with a carrying value of $16,885,063 and $18,790,667 at March 31, 2011 and December 31, 2010, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Temporarily Impaired Securities

The following table shows the gross unrealized losses and fair value of securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that securities have been in a continuous unrealized loss position at March 31, 2011 and December 31, 2010.

 

     Less Than Twelve Months     Twelve Months or More      Total
Unrealized

Losses
 
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    

March 31, 2011:

             

Mortgage-backed GSE residential

   $ 25,437,021       $ (354,172   $ —         $ —         $ (354,172

State and municipal

     2,233,016         (119,434     —           —           (119,434
                                           
   $ 27,670,037       $ (473,606   $ —         $ —         $ (473,606
                                           

December 31, 2010:

             

Mortgage-backed GSE residential

   $ 24,689,777       $ (378,370   $ —         $ —         $ (378,370

State and municipal

     2,207,732         (145,326     —           —           (145,326
                                           
   $ 26,897,509       $ (523,696   $ —         $ —         $ (523,696
                                           

GSE residential mortgage-backed securities. There were unrealized losses on sixteen GSE mortgage-backed securities resulting from temporary changes in the interest rate market. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2011.

State and municipal securities. There were unrealized losses on five state and municipal securities resulting from temporary changes in the interest rate market. Because the Company does not intend to sell the investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investment to be other-than-temporarily impaired at March 31, 2011.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4. SECURITIES (Continued)

Other-Than-Temporary Impairment

The Company conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. While all securities are considered, the securities primarily impacted by other-than-temporary impairment considerations have been trust preferred. For each security in the investment portfolio, a regular review is conducted to determine if an other-than-temporary impairment has occurred. Various factors are considered to determine if an other-than-temporary impairment has occurred. However, the most significant factors are default rates or interest deferral rates and the creditworthiness of the issuer. Other factors may include geographic concentrations, credit ratings, and other performance indicators of the underlying asset.

During the first and third quarters of 2010, the Company recorded an other than temporary impairment charge of $97,500 and $27,625, respectively, on its investment in a trust preferred security. As of December 31, 2010, the value of the trust preferred security for which other than temporary impairment was recognized was $650,000. Management determined the value of this security declined significantly due to the declines in its underlying collateral. The security has a new cost basis of approximately $524,875.

 

NOTE 5. LOANS

For purposes of the disclosures required pursuant to the adoption of amendments to ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which the entity develops and documents a systematic method for determining its allowance for loan losses. There are seven loan portfolio segments that include unsecured, cash value, residential real estate, commercial real estate, business assets, vehicles, and other.

Unsecured

Loans in this segment are any loans, whether guaranteed, endorsed or co-made, that are not fully collateralized. Unsecured loans are subject to the lending policies and procedures described in Note 2. Total unsecured loans as of March 31, 2011 were 0.4% of the total loan portfolio.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5. LOANS (Continued)

Cash Value

These are loans fully secured by cash or cash equivalents. Cash value loans are subject to the lending policies and procedures described in Note 2. Total cash value loans as of March 31, 2011 were 2.2% of the total loan portfolio.

Residential Real Estate

These loans include all mortgages and other liens on residential real estate, as well as vacant land designated as residential real estate. Residential real estate loans are subject to the lending policies and procedures described in Note 2. Total residential real estate loans as of March 31, 2011 were 17% of the total loan portfolio.

Commercial Real Estate

The commercial real estate portfolio represents the largest category of the Company’s loan portfolio. These loans include all mortgages and other liens on commercial real estate. Commercial real estate loans are subject to the lending policies and procedures described in Note 2. Total commercial real estate loans as of March 31, 2011 were 77.9% of the total loan portfolio.

Business Assets

Loans in this segment are made to businesses and are generally secured by business assets, equipment, inventory, and accounts receivable. Business assets loans are subject to the lending policies and procedures described in Note 2. Total business assets loans as of March 31, 2011 were 1.4% of the total loan portfolio.

Vehicles

Loans in this segment are secured by motor vehicles. Vehicle loans are subject to the lending policies and procedures described in Note 2. Total vehicle loans as of March 31, 2011 were 1% of the total loan portfolio.

Other

Loans in this segment are generally secured by consumer loans, but include all loans that do not belong in one of the other segments. Other loans are subject to the lending policies and procedures described in Note 2. Total other loans as of March 31, 2011 were less than 0.1% of the total loan portfolio.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5. LOANS (Continued)

The allowance for loan losses for the three months ended March 31, 2011, by portfolio segment, is as follows:

 

    Unsecured     Cash
Value
    Residential
Real Estate
    Commercial
Real Estate
    Business
Assets
    Vehicles     Other     Unallocated     Total  

Allowance for loan losses:

                 

Beginning balance

  $ 63,020      $ 5,210      $ 2,258,833      $ 2,234,925      $ 316,844      $ 141,759      $ 5      $ 203,168      $ 5,223,764   

Charge-offs

    (14,872     —          (32,498     (92,438     —          (8,056     —          —          (147,864

Recoveries

    3,986        —          —          5,976        1,175        —          —          —          11,137   

Provision

    53,887        9,052        (396,368     662,175        10,766        (1,542     —          (132,970     205,000   
                                                                       

Ending balance

  $ 106,021      $ 14,262      $ 1,829,967      $ 2,810,638      $ 328,785      $ 132,161      $ 5      $ 70,198      $ 5,292,037   
                                                                       

Ending balance - individually evaluated for impairment

  $ 49,867      $ —        $ 329,197      $ 791,528      $ 200,015      $ 79,612      $ —        $ —        $ 1,450,219   
                                                                       

Loans:

                 

Ending balance (1)

  $ 926,926      $ 5,080,850      $ 39,994,058      $ 182,718,582      $ 3,474,344      $ 2,363,273      $ 106,066      $ —        $ 234,664,099   
                                                                       

Ending balance - individually evaluated for impairment

  $ 83,744      $ 622,851      $ 17,564,036      $ 32,929,702      $ 2,151,222      $ 101,624      $ —        $ —        $ 53,453,179   
                                                                       

 

(1) Loans balances presented are gross of unearned loan fees of $858,414.

Impaired loans as of March 31, 2011, by portfolio segment, are as follows:

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
 

With no related allowance recorded:

           

Unsecured

   $ 28,402       $ 28,402       $ —         $ 52,424   

Cash value

     622,851         622,851         —           311,426   

Residential real estate

     15,086,878         15,086,878         —           16,237,434   

Commercial real estate

     27,938,692         27,938,692         —           25,000,384   

Business assets

     1,732,972         1,732,972         —           1,703,152   

Vehicles

     13,012         13,012         —           46,855   

Other

     —           —           —           —     

With a related allowance recorded:

           

Unsecured

     55,342         55,342         49,867         31,349   

Cash value

     —           —           —           —     

Residential real estate

     2,477,158         2,477,158         329,197         1,898,518   

Commercial real estate

     4,991,010         4,991,010         791,528         6,179,760   

Business assets

     418,250         418,250         200,015         342,626   

Vehicles

     88,612         88,612         79,612         123,430   

Other

     —           —           —           —     

Total:

           

Unsecured

     83,744         83,744         49,867         83,772   

Cash value

     622,851         622,851         —           311,426   

Residential real estate

     17,564,036         17,564,036         329,197         18,135,952   

Commercial real estate

     32,929,702         32,929,702         791,528         31,180,145   

Business assets

     2,151,222         2,151,222         200,015         2,045,778   

Vehicles

     101,624         101,624         79,612         170,285   

Other

     —           —           —           —     

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5. LOANS (Continued)

 

A primary credit quality indicator for financial institutions is delinquent balances. Following are the delinquent amounts, by portfolio segment, as of March 31, 2011:

 

     Current      30-89 Days      Greater
Than

90 Days
     Total Accruing
Past Due
     Non-Accrual      Total Financing
Receivables
 

Unsecured

   $ 785,373       $ 28,561       $ 5,511       $ 34,072       $ 107,481       $ 926,926   

Cash value

     5,078,178         —           —           —           2,672         5,080,850   

Residential real estate

     28,414,570         1,263,761         —           1,263,761         10,315,727         39,994,058   

Commercial real estate

     154,060,908         10,018,293         —           10,018,293         18,639,381         182,718,582   

Business assets

     2,265,156         322,202         83,486         405,688         803,500         3,474,344   

Vehicles

     1,855,862         230,647         —           230,647         276,764         2,363,273   

Other

     106,066         —           —           —           —           106,066   
                                                     
   $ 192,566,113       $ 11,863,464       $ 88,997       $ 11,952,461       $ 30,145,525       $ 234,664,099   
                                                     

The Company uses an eight-grade internal loan rating system for its loan portfolio as follows:

Grade 1 - Prime (Excellent)

Loans to borrowers with unquestionable financial strength and a solid earning history. This category includes national, international, regional, local entities, and individuals with commensurate capitalization, profitability, income, or ready access to capital markets as well as loans collateralized by cash equivalents. These loans are considered substantially risk free.

Grade 2 - Good (Superior)

Loans which exhibit a strong earnings record, and liquidity and leverage ratios that compare favorably with the industry. There are excellent prospects for continued growth. This category also includes those loans secured within margins with marketable collateral. Limited risk. The elements for risk for these borrowers are slightly greater than those associated with risk grade Prime.

Grade 3 - Acceptable (Average)

Loans to borrowers with a satisfactory financial condition, liquidity, and earnings history which indications that the trend will continue. Working capital is considered adequate and income is sufficient to repay debt as scheduled. Handles normal credit needs in a satisfactory manner.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5. LOANS (Continued)

 

Grade 4 - Fair (Watch)

Loans to borrowers which may show at least one of the following: start-up operation or venture capital, financial condition, adverse events which have not yet become trends such as sporadic profitability, occasional overdrafts, instances of slow pay, documentation deficiencies. Borrower may also exhibit substantial grantor support. Debt is being handled as agreed, and the primary source of repayment remains available. Circumstances may warrant more than normal monitoring, but are not serious enough to warrant criticism of classification.

Grade 5 - Special Mention

Loans with potential weaknesses which may, if not checked and corrected, would weaken the assets or inadequately protect the Bank’s credit position at some future date. These loans may require resolution of specific pending events before the associated risk can be adequately evaluated. These are criticized loans.

Grade 6 - Substandard

Loans, which are inadequately protected by the net worth and cash flow capacity of the borrower or the collateral pledged. The credit risk in this situation relates to the possibility of some loss of principal or interest if the deficiencies are not corrected. These loans are considered classified.

Grade 7 - Doubtful

Loans, which are inadequately protected by the net worth of the borrower or the collateral pledged and repayment in full is improbable on the basis of existing facts, values and conditions. The possibility of loss is high, but because of certain important and reasonable specific pending factors, which may work to the advantage and strengthening of the facility, its classification as an estimated loss is deferred until its more exact status may be determined. These loans are considered classified, as value is impaired. A full or partial reserve is warranted.

Grade 8 - Loss

Loans, which are considered uncollectible and continuance as an unacceptable asset are not warranted. These loans are considered classified and are either charged off or fully reserved against.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5. LOANS (Continued)

 

The following table presents the Company’s loans by risk rating, before unearned loan fees, at March 31, 2011:

 

Rating:

   Unsecured      Cash
Value
     Residential
Real Estate
     Commercial
Real Estate
     Business
Assets
     Vehicles      Other      Total  

Grade 1 (Prime)

   $ —         $ 42,794       $ —         $ —         $ —         $ —         $ —         $ 42,794   

Grade 2 (Superior)

     20,669         70,287         —           368,205         —           29,193         —           488,354   

Grade 3 (Acceptable-Average)

     564,042         4,072,946         14,075,976         130,339,334         849,841         1,583,598         —           151,485,737   

Grade 4 - Fair (Watch)

     34,410         82,834         2,306,180         9,125,637         369,641         343,708         106,066         12,368,476   

Grade 5 - (Special Mention)

     24,720         191,137         2,558,209         6,203,039         —           36,202         —           9,013,307   

Grade 6 (Substandard)

     283,085         620,852         20,474,209         36,519,276         2,254,862         365,102         —           60,517,386   

Grade 7 (Doubtful)

     —           —           579,484         —           —           5,470         —           584,954   

Grade 8 (Loss)

     —           —           —           163,091         —           —           —           163,091   
                                                                       
   $ 926,926       $ 5,080,850       $ 39,994,058       $ 182,718,582       $ 3,474,344       $ 2,363,273       $ 106,066       $ 234,664,099   
                                                                       

 

NOTE 6. EARNINGS PER COMMON SHARE

Presented below is a summary of the components used to calculate basic and diluted earnings per common share for the three months ended March 31, 2011 and 2010.

 

     Three Months Ended
March 31,
 
     2011      2010  

Net income available to common shareholders

   $ 35,302       $ 120,743   
                 

Weighted average common shares outstanding

     9,794,472         9,685,572   

Net effect of the assumed exercise of stock options based on the treasury stock method using the average market price for the period

     111,482         46,467   
                 

Total weighted average common shares and common stock equivalents outstanding

     9,905,954         9,732,039   
                 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6. EARNINGS PER COMMON SHARE (Continued)

 

Weighted average shares outstanding for the three months ended March 31, 2010 have been adjusted for a four for one stock split in the form of a 100% stock dividend declared and paid on June 22, 2010.

 

NOTE 7. STOCK BASED COMPENSATION

The Company has a stock option plan in which the Company can grant to directors, emeritus directors, and employees options for an aggregate of 2,553,600 shares of the Company’s stock. For incentive stock options, the option price shall be not less than the fair market value of such shares on the date the option is granted. If the optionee owns shares of the Company representing more than 10% of the total combined voting power, then the price shall not be less than 110% of the fair market value of such shares on the date the option is granted. With respect to nonqualified stock options, the option price shall be set at the Board’s sole and absolute discretion. The option period for all grants will not exceed ten years from the date of grant.

At December 31, 2010, all outstanding options were fully vested and there were no options granted during the three months ended March 31, 2011. Therefore, there was no compensation cost related to share-based payments for three months ended March 31, 2011.

The following table represents stock option activity for the three months ended March 31, 2011:

 

     Three Months Ended
March 31, 2011
 
     Number
of Shares
     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contract
Life
 

Options outstanding beginning of period

     178,656       $ 0.94      

Options exercised

     —           —        

Options forfeited

     —           —        
                          

Options outstanding end of period

     178,656         0.94         1.7 Yrs   
                          

Outstanding exercisable end of period

     178,656         0.94         1.7 Yrs   
                          

The option price for all options outstanding and exercisable at March 31, 2011 was $0.94.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7. STOCK BASED COMPENSATION (Continued)

 

Shares available for future stock options grants to employees and directors under existing plans were 633,600 at March 31, 2011. At March 31, 2011, the aggregate intrinsic value of options outstanding and exercisable was $279,150.

 

NOTE 8. CONTINGENCIES

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company’s consolidated financial statements.

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic (FASB ASC 820), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

 

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traced in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash, Due From Banks, Interest-Bearing Deposits at Other Financial Institutions, and Federal Funds Sold: The carrying amounts of cash, due from banks, and interest-bearing deposits at other financial institutions approximates fair value.

Securities: Where quoted prices are available in an active market, we classify the securities within level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds and exchange-traded equities.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

 

Fair Value Hierarchy (Continued)

If quoted market prices are not available, we estimate fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, including GSE obligations, corporate bonds, and other securities. Mortgage-backed securities are included in level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, we classify those securities in level 3.

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. Fair value of fixed rate loans is estimated using discounted contractual cash flow analyses, using market interest rates for comparable loans. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date. The carrying amounts of variable-rate certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation using market interest rates currently being offered for certificates of similar maturities.

Federal Funds Purchased: The carrying amounts of federal funds purchased approximate their fair values.

Federal Home Loan Bank (“FHLB”) advances and other borrowings: Fair values of fixed rate FHLB advances and other borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying values of variable rate FHLB advances and other borrowings approximate fair value.

Trust Preferred Securities: The fair value of the Company’s variable rate trust preferred securities approximates the carrying value.

Accrued Interest: The carrying amounts of accrued interest approximate fair value.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

 

Fair Value Hierarchy (Continued)

Off-balance Sheet Credit-Related Instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

Assets Measured at Fair Value on a Recurring Basis: Assets measured at fair value on a recurring basis are summarized below:

 

     Fair Value Measurements at March 31, 2011 Using         
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total
Carrying
Value
 

Securities available for sale

   $ —         $ 41,099,111       $ —         $ 41,099,111   
                                   

Total assets at fair value

   $ —         $ 41,099,111       $ —         $ 41,099,111   
                                   

 

     Fair Value Measurements at December 31, 2010 Using         
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total
Carrying
Value
 

Securities available for sale

   $ —         $ 37,012,468       $ —         $ 37,012,468   
                                   

Total assets at fair value

   $ —         $ 37,012,468       $ —         $ 37,012,468   
                                   

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

 

Fair Value Hierarchy (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis: Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis. The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded:

 

     Fair Value Measurements at
March 31, 2011 Using
        
     Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total Gains
(Losses)
 

Impaired loans

   $ —         $ —         $ 7,447,289       $ (1,444,174

Foreclosed real estate

     —           —           —           —     
                                   

Total

   $ —         $ —         $ 7,447,289       $ (1,444,174
                                   

 

     Fair Value Measurements at
December 31, 2010 Using
        
     Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total Gains
(Losses)
 

Impaired loans

   $ —         $ —         $ 19,201,393       $ (6,424,524

Foreclosed real estate

     —           —           1,175,349         (271,788
                                   

Total

   $ —         $ —         $ 20,376,742       $ (6,696,312
                                   

At March 31, 2011, in accordance with the provisions of the loan impairment guidance, individual loans with a carrying value of $8,891,463 were written down to fair value of $7,447,289, resulting in an impairment charge of $1,444,174. Impaired loans are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment, inventory and accounts receivable. Write downs of impaired loans are estimated using the present value of the expected cash flows or the appraised value of the underlying collateral discounted as necessary due to management’s estimates of changes in economic conditions.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9. FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

 

Fair Value Hierarchy (Continued)

Foreclosed real estate is adjusted to fair value upon transfer of the loans to foreclosed real estate. Subsequently, foreclosed real estate is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed real estate as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed real estate as nonrecurring Level 3.

The carrying amount and fair value of the Company’s financial instruments were as follows:

 

     March 31, 2011      December 31, 2010  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Financial assets:

           

Cash, due from banks, interest-bearing deposits at other financial institutions, and federal funds sold

   $ 13,360,281       $ 13,360,281       $ 6,530,362       $ 6,530,362   

Securities

     42,124,411         42,124,411         38,037,768         38,037,768   

Loans, net

     228,513,648         228,466,648         230,322,008         233,696,460   

Accrued interest receivable

     1,153,458         1,153,458         1,124,611         1,124,611   

Financial liabilities:

           

Deposits

     284,868,377         288,272,377         275,282,295         277,390,698   

Note payable

     275,250         275,250         275,250         275,250   

Federal Home Loan Bank advances

     5,500,000         5,486,000         5,500,000         5,521,875   

Company guaranteed trust preferred securities

     3,403,000         3,403,000         3,403,000         3,403,000   

Accrued interest payable

     881,717         881,717         999,367         999,367   

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2011, the FASB issued Accounting Standards Update No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01”). ASU 2011-01 temporarily delays the effective date of troubled debt restructuring disclosures required by ASU 2010-20 for public companies. The disclosures regarding troubled debt restructurings will be effective for interim and annual periods ending after June 15, 2011. ASU No. 2011-01 will have an impact on the Company’s disclosures, but not its financial position or results of operations.

In April 2011, the FASB issued Accounting Standards Update No. 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“ASU No. 2011-02”). ASU 2011-02 provides additional clarification for creditors in evaluating whether or not a debt restructuring involves a concession and whether a debtor is experiencing financial difficulties, both of which are the basis for determining whether a restructuring constitutes a troubled debt restructuring. The amendments will be effective for the first interim or annual period beginning on or after June 15, 2011. ASU 2011-02 also requires disclosure of those items deferred in ASU 2011-01 for interim and annual periods beginning on or after June 15, 2011. ASU No. 2011-02 will have an impact on the Company’s disclosures, but not its financial position or results of operations.

 

NOTE 11. SECONDARY STOCK OFFERING

On May 8, 2008, the Company filed an S-1 registration statement for a stock offering of up to 1,500,000 shares of the Company’s common stock at a price of $10 per share. The offering will terminate on May 8, 2011 or when all 1,500,000 shares of common stock are sold, whichever occurs first. The Company has sold 235,437 shares through the secondary stock offering.

On May 27, 2009, the Company filed Prospectus Supplement No. 1 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On August 17, 2009, the Company filed Prospectus Supplement No. 2 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On November 17, 2009, the Company filed Prospectus Supplement No. 3 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11. SECONDARY STOCK OFFERING (Continued)

On April 10, 2010, the Company filed Prospectus Supplement No. 4 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On May 25, 2010, the Company filed Prospectus Supplement No. 5 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On August 23, 2010, the Company filed Prospectus Supplement No. 6 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

On November 17, 2010, The Company filed Prospectus Supplement No. 7 to the prospectus dated May 8, 2008 discussed above. This filing is necessary as part of the ongoing offering.

 

NOTE 12. FEDERAL HOME LOAN BANK ADVANCES

During the first quarter of 2011, the Company had outstanding Federal Home Loan Bank (FHLB) advances of $5,500,000. These advances are variable rate and mature on various dates between April 1, 2011 and August 3, 2011.

On May 10, 2010, the Company was notified by the FHLB that, based on the current financial and operating condition of the Company, all credit availability of the Company with the FHLB had been rescinded. Additionally, the Company is also now required to provide all collateral underlying existing advances outstanding for safekeeping at the FHLB. On March 23, 2011, the Company was notified that its credit availability had been reinstated, for a maximum of 4% of the total assets of the Bank.

 

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CAPITOL CITY BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 13. STOCK SPLIT

On June 22, 2010, the Company’s shareholders approved a 4 for 1 stock split and a change in the par value of its common stock from $1.50 to $1.00. All per share amounts in all periods have been retroactively adjusted for this split as if it occurred in the first period presented.

 

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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 our 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.

CRITICAL ACCOUNTING POLICIES

We have established policies to govern the application of accounting principles in the preparation of our financial statements. Certain accounting policies involve assumptions and decisions by management which may have a material impact on the carrying value of certain assets and liabilities, and the results of our operations. We consider these accounting policies to be our critical accounting policies. The assumptions and decisions used by management are based on historical data and other factors which are believed to be reasonable considering the circumstances. Management believes that the allowance for loan losses and the accounting for deferred income taxes are the most critical accounting policies upon which the Company’s financial condition depends. The allowance for loan losses and the recognition of deferred taxes involve the most complex and subjective decisions and assessments that management must make.

Allowance for loan losses. We believe that the determination of the allowance for loan losses is the critical accounting policy that requires the most significant judgments and estimates used in preparation of our financial statements. Refer to the section “Allowance for loan losses” for a more detailed description of the methodology.

Deferred income taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

 

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Management exercises judgment in evaluating the amount and timing of recognition of resulting tax liabilities and assets. These judgments and estimates are reevaluated on a continual basis as regulatory and business factors change.

A valuation allowance for deferred tax assets is required when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realization of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income (in the near-term based on current projections), and tax planning strategies. As of March 31, 2011, there were no deferred income taxes as all had been written off as of December 31, 2010 due to losses sustained and none have been recorded during 2011.

FINANCIAL CONDITION

Total assets increased during the first three months of 2011 by $9.7 million from $295.3 million to $305 million, or 3.28%. The increase was largely due to an increase in securities of $4.1 million, a net increase in cash of $1.2 million, net decreases in loans of $1.7 million, net increases in other assets of $151,000, net increases in other real estate owned of $551,000 and increases in federal funds sold of $5.6 million. The loan to deposit ratio at March 31, 2011 was 82% compared to 86% at December 31, 2010.

Stockholders’ equity increased by $169,000 for the three months ended March 31, 2011. This net increase consisted of net income of $85,000, proceeds from issuance of common stock of $78,500, dividends declared on preferred stock of $50,000, and net increases in accumulated other comprehensive income of $55,000.

The total amount of nonperforming assets, which includes nonaccruing loans, other real estate owned, repossessed collateral, and loans for which payments are more than 90 days past due was $39,702,000 at March 31, 2011, representing an increase of $618,000 (1.6%) from December 31, 2010. This increase is attributable to increases of $598,000 in nonaccrual loans, and $551,000 in foreclosed real estate, offset by a decrease of $531,000 in accruing loans past due over 90 days. Total nonperforming assets were 16.98% of total loans at March 31, 2011, compared to 16.59% at December 31, 2010. Nonperforming assets represented 13.02% of total assets at March 31, 2011, compared to 13.23% of total assets at December 31, 2010. Nonaccrual loans represented 12.89% of total loans outstanding at March 31, 2011, compared to 12.54% of total loans outstanding at December 31, 2010. There were no related party loans which were considered to be nonperforming at March 31, 2011.

At March 31, 2011, the Company had loan concentrations in real estate totaling $222,713,000 or 94.9% of total loans, excluding loan fees. Commercial and industrial loans of $9,264,000 made up 3.9% of total loans. The remaining $2,687,000, or 1.2%, of total loans, excluding loan fees, consisted of consumer and other loans.

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 our 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.

 

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At March 31, 2011, the Bank’s liquidity ratio of 11.47% was considered satisfactory in relation to regulatory guidelines, although it was below internal targets. During the second quarter of 2010 the Company’s credit availability with the FHLB was rescinded. On March 23, 2011, the Company was notified that its credit availability had been reinstated for a maximum of 4% of total assets of the Bank. Also, at March 31, 2011, the Company had the ability to borrow up to $5.0 million in federal funds from correspondent banks. It also had an available repurchase line with a correspondent bank of $10.0 million and borrowing capacity through the Federal Reserve Discount Window of $2.6 million.

REGULATORY CAPITAL REQUIREMENTS

Banking regulations require us to maintain minimum capital levels in relation to assets. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the regulators, that, if undertaken, could have a direct material effect on the consolidated financial statements. At March 31, 2011, the Bank was considered under capitalized based on an agreement with its primary regulatory agency. The minimum capital requirements and the actual capital ratios for the Company and Bank at March 31, 2011 are as follows:

 

      Company     Bank     Regulatory
Minimum
Requirement
 

Leverage Capital Ratio

     4.31     4.48     4.00

Risk-Based Capital Ratios

      

Core Capital

     5.04     5.23     4.00

Total Capital

     6.30     6.49     8.00

We are not aware of any other recommendations by the regulatory authorities, events or trends, which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

OFF BALANCE SHEET ARRANGEMENTS

Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance sheet financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are distributed or the instruments become payable. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Although these amounts do not necessarily represent future cash requirements, a summary of our commitments as of March 31, 2011 are as follows:

 

     March 31,
2011
 

Commitments to extend credit

   $ 3,966,000   

Financial standby letters of credit

     650,000   

Other standby letters of credit

     400,000   
        
   $ 5,016,000   
        

 

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 and 2010

Net Interest Income. Net interest income decreased by $14,000 for the three month period ended March 31, 2011, compared to the same period in 2010. The overall decrease in net interest income for the three month period is primarily attributable to increased nonaccrual loans and the corresponding reduction in interest income. The rate paid on interest-bearing liabilities decreased from 3.06% to 2.30%, or 76 basis points, for the same period. The decrease in the rate paid on interest-bearing liabilities is due primarily to the repricing of deposits as they mature to the current lower rates. The net yield on interest-earning assets increased to 3.52% at March 31, 2011 as compared to 3.16% at March 31, 2010 and 3.02% for the entire year ended December 31, 2010.

The yield on interest-earning assets decreased from 6.18% to 5.95%, or 23 basis points, from March 31, 2010 to March 31, 2011.

 

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Interest Income and Interest Expense

The following table sets forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.

 

     For the Three Months Ended
March 31, 2011
    For the Three Months Ended
March 31, 2010
 
     Average
Balance
     Income/
Expense
     Yields/
Rates(2)
    Average
Balance
     Income/
Expense
     Yields/
Rates(2)
 
     (Dollars in thousands)  

Earning assets:

                

Loans, net of unearned income(4)

   $ 204,954       $ 3,453         6.83   $ 230,044       $ 3,956         6.97

Securities

     38,890         219         2.28       50,241         318         2.57  

Interest-bearing deposits

     455         1         0.55       18         —           0.07  

Federal funds sold(3)

     6,152         2         0.11       4         —           4.48  
                                        

Total interest-earning assets(1)

   $ 250,451       $ 3,675         5.95     $ 280,307       $ 4,274         6.18  
                                        

Interest-bearing liabilities:

                

Demand and savings deposits

   $ 34,621       $ 83         0.97     $ 36,124       $ 106         1.19  

Time deposits

     220,265         1,374         2.53       219,221         1,886         3.49  
                                        

Total deposits

     254,886         1,457         2.32       255,345         1,992         3.16  

Other short-term borrowings

     5,775         12         0.87       17,482         65         1.51  

Long-term debt

     3,403         32         3.79       3,403         30         3.58  
                                        

Total interest-bearing liabilities

   $ 264,064         1,501         2.30     $ 276,230         2,087         3.06  
                                        

Net interest income/net interest spread

      $ 2,174         3.65      $ 2,187         3.12
                                        

Net yield on earning assets

           3.52           3.16
                            

 

(1) Average securities exclude average unrealized gains (losses) of $(491,000) and $688,000 for the three months ended March 31, 2011 and 2010, respectively.
(2) Annualized.
(3) The March 31, 2010 yield is skewed due to the fact that the Bank had lower federal funds sold balances for only a short period in 2010.
(4) Average loans exclude average nonaccrual loans of $30,776,000 and $13,626,000 for the three months ended March 31, 2011 and 2010, respectively.

 

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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. We review the allowance for loan loss on a quarterly basis and make provisions as necessary. A provision of $205,000 was made during the three month period ending March 31, 2011 as compared to a provision of $0 made during the three month period ending March 31, 2010. The allowance for loan loss as a percentage of total loans was 2.26%, 2.22%, and 2.71% at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Total nonaccrual loans increased by $9,951,000, net charge-offs increased by $19,000, loans past due ninety days or more and still accruing decreased by $2,402,000, and restructured loans increased by $4,344,000 for the three months ended March 31, 2011 as compared to the same periods in 2010. Due to collateral values of the underlying collateral and losses already recognized, we do not anticipate significant additional losses related to identified impaired loans. Management believes the allowance for loan loss at March 31, 2011 is adequate to absorb any foreseeable losses in the loan portfolio.

At March 31, 2011 and 2010, nonaccrual, past due and restructured loans were as follows:

 

     March 31,  
     2011      2010  
     (Dollars in thousands)  

Total nonaccruing loans

   $ 30,145       $ 20,194   

Loans contractually past due ninety days or more as to interest or principal payments and still accruing

     89         2,491   

Restructured loans

     20,213         15,869   

It is our policy 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.

 

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The following is a category detail of our allowance percentage and reserve balance by loan type at March 31, 2011 and December 31, 2010:

 

Loan Group Description

   March 31,  2011
Calculated
Reserves
     March 31, 2011
Reserve %
    December 31, 2010
Calculated
Reserves
     December 31, 2010
Reserve %
 

Unsecured

   $ 106,021         11.44   $ 63,020         7.14

Cash Value

     14,262         0.28     5,210         0.11

Residential real estate

     1,829,967         4.58     2,258,833         5.88

Commercial real estate

     2,810,638         1.54     2,234,925         1.20

Business assets

     328,785         9.46     316,844         9.36

Vehicles

     132,161         5.59     141,759         5.48

Other

     5         0.01     5         0.00

Unallocated

     70,198           203,168      
                      

Total Allowance for Loan Loss

   $ 5,292,037         2.26   $ 5,223,764         2.21
                      

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.

Information regarding certain loans and allowance for loan loss data for the three months ended March 31, 2011 and 2010 is as follows:

 

     Three Months Ended
March 31,
 
     2010     2010  
     (Dollars in thousands)  

Average amount of loans outstanding

   $ 229,279      $ 243,670   
                

Balance of allowance for loan losses at beginning of period

   $ 5,224      $ 6,649   
                

Loans charged off

    

Commercial

     (3     (7

Real estate

     (113     (123

Installment

     (32     (14
                
     (148     (144
                

Loans recovered

    

Commercial

     1        8   

Real estate

     5        15   

Installment

     5        3   
                
     11        26   
                

Net charge-offs

     (137     (118
                

Additions to allowance charged to operating expense during period

     205        —     
                

Balance of allowance for loan losses at end of period

   $ 5,292      $ 6,531   
                

Ratio of net loans charged-off during the period to average loans outstanding

     0.06     0.05
                

 

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Other Income. Other income decreased by $11 for the three months ended March 31, 2011, respectively, compared to the same period in 2010. The most significant component of other income is service charges on deposit accounts which accounts for 70.6% and 70.7% of total other income for March 31, 2011 and 2010, respectively. Service charges on deposit accounts include monthly service charges, non-sufficient funds (“NSF”) charges, and other miscellaneous maintenance fees. The amount of service charges fluctuates with the volume of transaction accounts and the volume of NSF activity.

Other Expenses. Other expenses decreased by $183,000 for the three months ended March 31, 2011, as compared to the same period in 2010. The decrease for the three month period mainly consists of decreases in salaries and employee benefits of $58,000 and other expenses of $157,000, offset by increases in occupancy and equipment expense of $32,000. The decrease in other operating expenses was largely due to decreases in expenses related to foreclosed real estate. At March 31, 2011, the number of full-time equivalent employees was 77 compared to 73 at March 31, 2010.

Income Tax Benefits. As of March 31, 2011, the Company has no more income taxes that it could recover from prior periods. Because of this tax situation, and the uncertainty of the realizability of deferred income taxes, no tax benefit has been recorded for the three months ended March 31, 2011.

Net Income. Net income decreased by $35,000 for the three months ended March 31, 2011, as compared to the same period in 2010. This decrease is largely the result of the increased provision for loan losses and decreased net interest income since the prior year.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable as the registrant is a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of the Company’s disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and the Principal Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures are effective.

There have been no changes in the Company’s internal control over financial reporting in the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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PART II - Other Information

 

ITEM 1. LEGAL PROCEEDINGS

There have been no material developments in the legal proceedings previously reported in the Company’s Annual Report on Form 10-K (filed with the Commission on April 15, 2011) nor have any new reportable legal proceedings involving the Company been instituted.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. (REMOVED AND RESERVED)

 

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

  2.1 Plan of Reorganization and Agreement of Merger, dated April 14, 1998, by and between Capitol City Bancshares, Inc., Capitol City Bank and Trust, and Capitol City Interim, Inc., which Agreement is included as Appendix A to the Proxy Statement included in this Registration Statement filed by Registrant on Form S-4 on March 31, 1998, Registration No. 333-64789 (incorporated by reference as Exhibit 2.1 to the Registrant’s 10-KSB filed on March 31, 1999).

 

  3.1 Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1 to the Registrant’s 10-KSB filed on March 31, 1999).

 

  3.1(A) Amendment to the Articles of Incorporation of Registrant (incorporated by reference as Exhibit 3.1(A) to the Registrant’s Annual Report on Form 10-KSB filed on March 31, 2005).

 

  3.1(B) Articles of Amendment to the Articles of Incorporation of the Registrant filed February 9, 2007 (incorporated by reference as Exhibit 3.1(B) to the Registrant’s Current Report on Form 8-K filed on February 15, 2007).

 

  3.1(C) Articles of Amendment to the Articles of Incorporation of the Registrant filed February 12, 2007 (incorporated by reference as Exhibit 3.1(C) to the Registrant’s Current Report on Form 8-K filed on February 15, 2007).

 

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  3.1(D) Articles of Amendment to the Articles of Incorporation of the Registrant filed February 15, 2007 (incorporated by reference as Exhibit 3.1(D) to the Registrant’s Current Report on Form 8-K filed on February 15, 2007).

 

  3.1(E) Articles of Amendment to the Articles of Incorporation of the Registrant filed October 14, 2009 (incorporated by reference as Exhibit 3.1(E) to the Registrant’s Quarterly Report on Form 10-Q filed on November 13, 2009).

 

  3.1(F) Articles of Amendment to the Articles of Incorporation of the Registrant filed July 13, 2010 (incorporated by reference as Exhibit 3.9 to the Registrant’s Current Report on Form 8-K filed on July 16, 2010).

 

  3.2 Bylaws of Registrant (incorporated by reference as Exhibit 3.2 to the Registrant’s 10-KSB filed on March 31, 1999).

 

  31.1 Section 302 Certification of Principal Executive Officer

 

  31.2 Section 302 Certification of Principal Financial and Accounting Officer

 

  32.1 Section 906 Certification of Principal Executive Officer

 

  32.2 Section 906 Certification of Principal Financial and Accounting Officer

 

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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 16, 2011      

/s/ George G. Andrews

      George G. Andrews
      CEO, President and Director
     
Date: May 16, 2011      

/s/ Tatina Brooks

      Tatina Brooks
      Senior Vice President of Accounting and
     

Financial Reporting (Principal Financial and

Accounting Officer)

 

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