TABLE OF CONTENTS




|                                                                                      |                                                      |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  |  | 
|ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)                                             
|                                                                                      | CONSOLIDATED BALANCE SHEETS                         
|                                                                                      | CONSOLIDATED STATEMENTS OF INCOME                   
|                                                                                      | CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY     
|                                                                                      | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                                                                                      | NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION                                                           
|SIGNATURES                                                                           



---



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For Quarter Ended September 30, 1999

Commission File Number 33-46573

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

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|OHIO
                                      | 34-1588902
     
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

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

(419) 885-7379

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

(1) Yes X      (2) No

As of September 30, 1999, there were 6,081,319 shares of common stock
outstanding.

1



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##### Table of Contents



CAPITAL HOLDINGS, INC.

Index

|                                                                                              |                                                                                                     |  |      |             |  | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- |  | ---- | ----------- |  | 
|                                                                                              |                                                                                                     |  |      | Page Number
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (Unaudited):                                                    
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated balance sheets
      September 30, 1999 and December 31, 1998                          |  |      | 3           | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated statements of income
      Three months ended September 30, 1999 and 1998              |  |      | 4           | 
|                                                                                              | Nine
months ended September 30, 1999 and 1998                                                      
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated statements of
shareholders equity
      Nine months ended September 30, 1999 and 1998 |  |      | 5           | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated statements of cash flows
      Nine months ended September 30, 1999 and 1998           |  |      | 6           | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to consolidated financial statements                                                          |  |      | 7           | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                     |  | 8-13 |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II. OTHER INFORMATION                                                                    |                                                                                                     |  | 13   |            
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|SIGNATURES                                                                                    |                                                                                                     |  | 14   |            

2



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##### Table of Contents















CAPITAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |             |             | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----------- | ------------------ | ----------- | ----------------- | ----------- | ----------- | ----------- | 
|                                           |                                                                                                                                                           |                                   |             | (UNAUDITED)       
|                                           |                                                                                                                                                           |                                   |             | SEPTEMBER 30, 1999 |             | DECEMBER 31, 1998
|                                           |                                                                                                                                                           |                                   |             |                    |             |                  
|ASSETS                                    
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and due from banks                                                                                                                                   |                                   | $           | 13,550,961         |             |                   | $           | 18,262,969  |            
|                                          
|                                          
|                                          
|                                          
|                                           | Federal funds sold                                                                                                                                        |                                   |             | 0                  |             |                   |             | 11,000,000  |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|                                           | Total cash and cash equivalents                                                                                                                           |                                   |             | 13,550,961         |             |                   |             | 29,262,969  |            
|                                          
|                                          
|                                          
|                                          
|                                           | Investment securities available for sale, at fair value                                                                                                   |                                   |             | 218,649,336        |             |                   |             | 184,583,020 |            
|                                          
|                                          
|                                          
|                                          
|                                           | Loans                                                                                                                                                     |                                   |             | 677,988,095        |             |                   |             | 578,369,916 |            
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                           | Less: Allowance for credit losses |             |                    | 9,756,482   |                   |             |             | 8,145,982   | 
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|                                           | Net loans                                                                                                                                                 |                                   |             | 668,231,613        |             |                   |             | 570,223,934 |            
|                                          
|                                          
|                                          
|                                          
|                                           | Bank premises and equipment                                                                                                                               |                                   |             | 9,705,966          |             |                   |             | 9,751,447   |            
|                                          
|                                          
|                                          
|                                          
|                                           | Interest receivable and other assets                                                                                                                      |                                   |             | 12,590,731         |             |                   |             | 7,806,606   |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|Total Assets                               |                                                                                                                                                           | $                                 | 922,728,607 |                    |             | $                 | 801,627,976 |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|LIABILITIES AND SHAREHOLDERS EQUITY      
|                                          
|                                          
|                                          
|                                          
|                                           | Deposits:                                                                                                                                                
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                           | Interest bearing                  |             | $                  | 683,373,363 |                   |             | $           | 606,571,823 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                                           | Noninterest bearing               |             |                    | 60,199,164  |                   |             |             | 56,494,624  | 
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|                                           | Total deposits                                                                                                                                            |                                   |             | 743,572,527        |             |                   |             | 663,066,447 |            
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term borrowings                                                                                                                                     |                                   |             | 105,945,417        |             |                   |             | 72,016,334  |            
|                                          
|                                          
|                                          
|                                          
|                                           | Interest payable and other liabilities                                                                                                                    |                                   |             | 12,669,788         |             |                   |             | 8,122,982   |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|Total Liabilities                          |                                                                                                                                                           |                                   | 862,187,732 |                    |             |                   | 743,205,763 |            
|                                          
|                                          
|                                          
|                                          
|SHAREHOLDERS EQUITY                      
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, no par value, $.167 stated value;
20,000,000 shares authorized and 6,081,319 shares
issued and outstanding (6,049,224 at December 31, 1998) |                                   |             | 1,014,069          |             |                   |             | 1,008,204   |            
|                                          
|                                          
|                                          
|                                          
|                                           | Capital in excess of stated value                                                                                                                         |                                   |             | 34,749,333         |             |                   |             | 34,201,997  |            
|                                          
|                                          
|                                          
|                                          
|                                           | Retained earnings                                                                                                                                         |                                   |             | 26,703,683         |             |                   |             | 21,197,999  |            
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive income                                                                                                                    |                                   |             | (1,926,210         | )           |                   |             | 2,014,013   |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|Total Shareholders Equity                 |                                                                                                                                                           |                                   | 60,540,875  |                    |             |                   | 58,422,213  |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            
|Total Liabilities and Shareholders Equity |                                                                                                                                                           | $                                 | 922,728,607 |                    |             | $                 | 801,627,976 |            
|                                           |                                                                                                                                                           |                                   |             |                    |             |                   |             |            

See accompanying notes

3



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##### Table of Contents









CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |           |            | 
|----------------------------------------------------- | ----------------------- | ------------------------------ | ---------- | ------------------ | ---------- | ----------------- | ---------- | --------- | ---------- | ---- | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | 
|                                                      |                         |                                |            | THREE MONTHS ENDED |            | NINE MONTHS ENDED
|                                                      |                         |                                |            | SEPTEMBER 30       |            | SEPTEMBER 30     
|                                                      |                         |                                |            |                    |            |                  
|                                                      |                         |                                |            | 1999               |            | 1998              |            | 1999      |            | 1998
|                                                      |                         |                                |            |                    |            |                   |            |           |            |     
|Interest income:                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Loans, including fees          |            | $                  | 13,571,097 |                   |            | $         | 11,312,961 |      |            | $         | 38,546,227 |   |            | $         | 32,383,404 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Securities                     |            |                    | 3,285,874  |                   |            |           | 2,934,723  |      |            |           | 9,147,016  |   |            |           | 8,381,921  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Federal funds sold             |            |                    | 50,644     |                   |            |           | 175,949    |      |            |           | 158,003    |   |            |           | 384,004    | 
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Total interest income                                 |                         |                                | 16,907,615 |                    |            |                   | 14,423,633 |           |            |      | 47,851,246 |           |            |   | 41,149,329 |          
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense:                                    
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Deposits                       |            |                    | 8,285,402  |                   |            |           | 7,526,701  |      |            |           | 23,317,094 |   |            |           | 21,639,212 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Short-term borrowings          |            |                    | 1,258,851  |                   |            |           | 751,538    |      |            |           | 3,317,251  |   |            |           | 1,893,957  | 
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Total interest expense                                |                         |                                | 9,544,253  |                    |            |                   | 8,278,239  |           |            |      | 26,634,345 |           |            |   | 23,533,169 |          
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Net interest income                                   |                         |                                | 7,363,362  |                    |            |                   | 6,145,394  |           |            |      | 21,216,901 |           |            |   | 17,616,160 |          
|                                                     
|                                                     
|                                                     
|                                                     
|Provision for credit losses                           |                         |                                | 475,000    |                    |            |                   | 320,000    |           |            |      | 1,600,000  |           |            |   | 830,000    |          
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Net interest income after provision for credit losses |                         |                                | 6,888,362  |                    |            |                   | 5,825,394  |           |            |      | 19,616,901 |           |            |   | 16,786,160 |          
|                                                     
|                                                     
|                                                     
|                                                     
|Other income:                                        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Securities gains, net          |            |                    | 5,960      |                   |            |           | 675        |      |            |           | 35,846     |   |            |           | 21,802     | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Other                          |            |                    | 710,838    |                   |            |           | 391,993    |      |            |           | 1,614,617  |   |            |           | 1,062,787  | 
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Total other income                                    |                         |                                | 716,798    |                    |            |                   | 392,668    |           |            |      | 1,650,463  |           |            |   | 1,084,589  |          
|                                                     
|                                                     
|                                                     
|                                                     
|Other expenses:                                      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Salaries and employee benefits |            |                    | 1,977,415  |                   |            |           | 1,637,396  |      |            |           | 5,851,620  |   |            |           | 4,868,686  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Equipment                      |            |                    | 247,907    |                   |            |           | 251,406    |      |            |           | 716,759    |   |            |           | 607,481    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Taxes other than income        |            |                    | 134,124    |                   |            |           | 115,875    |      |            |           | 369,439    |   |            |           | 354,525    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Courier services               |            |                    | 188,416    |                   |            |           | 156,552    |      |            |           | 531,945    |   |            |           | 451,988    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Net occupancy                  |            |                    | 128,041    |                   |            |           | 80,928     |      |            |           | 321,946    |   |            |           | 225,305    | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                         | Other                          |            |                    | 1,090,177  |                   |            |           | 827,663    |      |            |           | 3,176,354  |   |            |           | 2,656,269  | 
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Total other expenses                                  |                         |                                | 3,766,080  |                    |            |                   | 3,069,820  |           |            |      | 10,968,063 |           |            |   | 9,164,254  |          
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Income before provision for federal income tax        |                         |                                | 3,839,080  |                    |            |                   | 3,148,242  |           |            |      | 10,299,301 |           |            |   | 8,706,495  |          
|                                                     
|                                                     
|                                                     
|                                                     
|Provision for federal income tax                      |                         |                                | 1,235,000  |                    |            |                   | 990,000    |           |            |      | 3,335,000  |           |            |   | 2,830,000  |          
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Net income                                            |                         | $                              | 2,604,080  |                    |            | $                 | 2,158,242  |           |            | $    | 6,964,301  |           |            | $ | 5,876,495  |          
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Per common share (1):                                
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Net income             
|                                                      | Basic                   |                                | $          | 0.43               |            |                   | $          | 0.36      |            |      | $          | 1.15      |            |   | $          | 0.98      |           
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|                                                      | Diluted                 |                                |            | $                  | 0.42       |                   |            | $         | 0.35       |      |            | $         | 1.11       |   |            | $         | 0.96       | 
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|                                                      | Cash dividends declared |                                | $          | 0.08               |            |                   | $          | 0.07      |            |      | $          | 0.24      |            |   | $          | 0.21      |           
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|Average shares outstanding (1):                      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Basic                   |                                |            | 6,079,194          |            |                   |            | 6,011,481 |            |      |            | 6,071,649 |            |   |            | 6,003,189 |           
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          
|                                                      | Diluted                 |                                |            | 6,264,420          |            |                   |            | 6,139,218 |            |      |            | 6,250,132 |            |   |            | 6,098,223 |           
|                                                      |                         |                                |            |                    |            |                   |            |           |            |      |            |           |            |   |            |          

See accompanying notes



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|(1) |  | Numbers have been restated to reflect a 3-for-1 stock split effective June 30, 1999.
|--- |  | ------------------------------------------------------------------------------------

4



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##### Table of Contents









CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|--------------------------------------------------- |  | ------------ |  | ---------- |  | ------------ | --------- | ------------- |  | ------------- | --------- | ------ |  | - | ---------- | - |  | - | ---------- | - |  | ----------- | ----------- | - |  | - | ---------- | -
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  | ACCUMULATED
|                                                    |  | COMMON STOCK |  | CAPITAL IN |  |              |           |               |  | OTHER         |           | TOTAL 
|                                                    |  |              |  | EXCESS OF  |  | RETAINED     |           | COMPREHENSIVE |  | SHAREHOLDERS'
|                                                    |  | SHARES       |  | AMOUNT     |  | STATED VALUE |           | EARNINGS      |  | INCOME        |           | EQUITY
|                                                    |  |              |  |            |  |              |           |               |  |               |           |       
|Balance at January 1, 1999                          |  |              |  |            |  |              | 6,049,224 |               |  | $             | 1,008,204 |        |  | $ | 34,201,997 |   |  | $ | 21,197,999 |   |  | $           | 2,014,013   |   |  | $ | 58,422,213 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   | 6,964,301  |   |  |             |             |   |  |   | 6,964,301  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Unrealized gains (losses) on securities, net of tax |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             | (3,940,223  | ) |  |   | (3,940,223 | )
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|Comprehensive Income                                |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   | 3,024,078  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Exercise of common stock options                    |  |              |  |            |  |              | 15,750    |               |  |               | 3,141     |        |  |   | 215,876    |   |  |   |            |   |  |             |             |   |  |   | 219,017    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Issuance of common stock shares                     |  |              |  |            |  |              | 16,345    |               |  |               | 2,724     |        |  |   | 331,460    |   |  |   |            |   |  |             |             |   |  |   | 334,184    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Treasury shares purchased                           |  |              |  |            |  |              | (9,000    | )             |  |               | (1,500    | )      |  |   | (178,500   | ) |  |   |            |   |  |             |             |   |  |   | (180,000   | )
|                                                   
|                                                   
|                                                   
|                                                   
|Treasury shares sold                                |  |              |  |            |  |              | 9,000     |               |  |               | 1,500     |        |  |   | 178,500    |   |  |   |            |   |  |             |             |   |  |   | 180,000    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cash dividend declared, $.24 per share              |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   | (1,458,617 | ) |  |             |             |   |  |   | (1,458,617 | )
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|Balance at September 30, 1999                       |  |              |  |            |  |              | 6,081,319 |               |  | $             | 1,014,069 |        |  | $ | 34,749,333 |   |  | $ | 26,703,683 |   |  |             | ($1,926,210 | ) |  | $ | 60,540,875 |  
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|Balance at January 1, 1998                          |  |              |  |            |  |              | 5,975,766 |               |  | $             | 995,961   |        |  | $ | 33,179,413 |   |  | $ | 15,014,646 |   |  | $           | 1,356,662   |   |  | $ | 50,546,682 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   | 5,876,495  |   |  |             |             |   |  |   | 5,876,495  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Unrealized gains (losses) on securities, net of tax |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             | 2,030,571   |   |  |   | 2,030,571  |  
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|Comprehensive Income                                |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   | 7,907,066  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Exercise of common stock options                    |  |              |  |            |  |              | 21,180    |               |  |               | 3,530     |        |  |   | 172,526    |   |  |   |            |   |  |             |             |   |  |   | 176,056    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Issuance of common stock shares                     |  |              |  |            |  |              | 18,090    |               |  |               | 3,014     |        |  |   | 289,920    |   |  |   |            |   |  |             |             |   |  |   | 292,934    |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cash dividend declared, $.21 per share              |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   | (1,261,400 | ) |  |             |             |   |  |   | (1,261,400 | )
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  
|Balance at September 30, 1998                       |  |              |  |            |  |              | 6,015,036 |               |  | $             | 1,002,505 |        |  | $ | 33,641,859 |   |  | $ | 19,629,741 |   |  | $           | 3,387,233   |   |  | $ | 57,661,338 |  
|                                                    |  |              |  |            |  |              |           |               |  |               |           |        |  |   |            |   |  |   |            |   |  |             |             |   |  |   |            |  

See accompanying notes

5



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##### Table of Contents









CAPITAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |             |          |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------------------------------- | ------------ | ----------------- | ---------- | ---------- | ----------- | -------- | ---------- | -
|                                                 |                                                                                   |                                                               |                                                               |              | NINE MONTHS ENDED
|                                                 |                                                                                   |                                                               |                                                               |              | SEPTEMBER 30     
|                                                 |                                                                                   |                                                               |                                                               |              |                  
|                                                 |                                                                                   |                                                               |                                                               |              | 1999              |            | 1998      
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |           
|OPERATING ACTIVITIES:                           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net Income                                                                        |                                                               | $                                                             | 6,964,303    |                   |            | $          | 5,876,495   |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income to net
cash provided by operating activities:
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Provision for credit losses                                   |                                                               |              | 1,600,000         |            |            |             | 830,000  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Depreciation and amortization                                 |                                                               |              | 577,503           |            |            |             | 490,828  |           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Amortization and accretion of security premiums and discounts |                                                               |              | (34,656           | )          |            |             | (34,993  | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Gain on sale of securities                                    |                                                               |              | (35,846           | )          |            |             | (21,802  | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Deferred income taxes                                         |                                                               |              | (544,000          | )          |            |             | (282,200 | )         
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   | Changes in assets and liabilities:                           
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                               | Increase in interest receivable and other assets              |              |                   | (2,210,311 | )          |             |          | (1,467,912 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                   |                                                               | Increase/(decrease) in interest payable and other liabilities |              |                   | 4,544,238  |            |             |          | (506,009   | )
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|                                                 | Total adjustments                                                                 |                                                               |                                                               | 3,896,928    |                   |            |            | (992,088    | )       
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|                                                 | Net cash provided by operating activities                                         |                                                               |                                                               | 10,861,231   |                   |            |            | 4,884,407   |         
|                                                
|                                                
|                                                
|                                                
|INVESTING ACTIVITIES:                           
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of securities available for sale                                         |                                                               |                                                               | (63,089,502  | )                 |            |            | (56,887,506 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net increase in loans                                                             |                                                               |                                                               | (99,607,679  | )                 |            |            | (59,564,105 | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of bank premises and equipment                                           |                                                               |                                                               | (532,022     | )                 |            |            | (644,733    | )       
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from maturities of securities available for sale                         |                                                               |                                                               | 5,113,898    |                   |            |            | 6,971,596   |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Proceeds from sales of securities available for sale                              |                                                               |                                                               | 18,009,751   |                   |            |            | 26,649,939  |         
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|                                                 | Net cash used in investing activities                                             |                                                               |                                                               | (140,105,554 | )                 |            |            | (83,474,809 | )       
|                                                
|                                                
|                                                
|                                                
|FINANCING ACTIVITIES:                           
|                                                
|                                                
|                                                
|                                                
|                                                 | Net increase in deposits                                                          |                                                               |                                                               | 80,506,080   |                   |            |            | 52,090,852  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Net increase in short-term borrowings                                             |                                                               |                                                               | 33,929,083   |                   |            |            | 32,655,119  |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of common stock                                                          |                                                               |                                                               | 553,202      |                   |            |            | 468,990     |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Treasury stock purchased                                                          |                                                               |                                                               | (180,000     | )                 |            |            | 0           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Treasury stock sold                                                               |                                                               |                                                               | 180,000      |                   |            |            | 0           |         
|                                                
|                                                
|                                                
|                                                
|                                                 | Dividends paid                                                                    |                                                               |                                                               | (1,456,050   | )                 |            |            | (1,178,779  | )       
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|                                                 | Net cash provided by financing activities                                         |                                                               |                                                               | 113,532,315  |                   |            |            | 84,036,182  |         
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|(Decrease)/increase in cash and cash equivalents |                                                                                   |                                                               | (15,712,008                                                   | )            |                   |            | 5,445,780  |            
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                   |                                                               | 29,262,969                                                    |              |                   |            | 23,291,951 |            
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|Cash and cash equivalents at end of period       |                                                                                   | $                                                             | 13,550,961                                                    |              |                   | $          | 28,737,731 |            
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|Supplemental disclosures:                       
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest paid                                                                     |                                                               | $                                                             | 25,870,286   |                   |            | $          | 23,069,870  |         
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            
|                                                 | Income taxes paid                                                                 |                                                               | $                                                             | 3,535,000    |                   |            | $          | 2,776,000   |         
|                                                 |                                                                                   |                                                               |                                                               |              |                   |            |            |            

See accompanying notes

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##### Table of Contents



CAPITAL HOLDINGS, INC.







Notes to Unaudited Consolidated Financial Statements
for the Nine Months Ended September 30, 1999

BASIS OF PRESENTATION

The unaudited consolidated financial statements include the accounts of Capital
Holdings, Inc. (the Company) and its wholly owned subsidiaries, Capital Bank,
N.A. (the Bank) and CBNA Building Company, which is a real estate subsidiary
that owns and leases to the Bank, its only operating facility. The Company
operates primarily in one business segment as a focused commercial business
lender.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements. For further information refer to the consolidated
financial statements and notes thereto appearing in the Companys annual report
on Form 10-K for the year ended December 31, 1998.

The Banks maximum exposure to credit losses for loan commitments and standby
letters of credit outstanding at September 30, 1999 was $295,355,000 and
$24,727,000, respectively, compared to $237,290,000 and $16,819,000,
respectively, at December 31, 1998. The increase in loan commitments is due to
the increased activity from corporate borrowers as well as from the increase in
owner-occupied commercial real estate construction.

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##### Table of Contents



CAPITAL HOLDINGS, INC.







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

Loan growth for the third quarter of 1999 was $15,908,000 or 2.4% and
$99,618,000 or 17.2% for the nine months ended September 30, 1999. Loan growth
for the nine months ended September 30, 1999, consisted of $32 million or 32%
from continued strong borrowing needs of the Banks corporate customers, and $58
million or 58% from commercial real estate construction loans. A substantial
percentage of the real estate construction loans are supported by quality credit
tenant leases or with specific take-out financing. The allowance for credit
losses at September 30, 1999, was $9,756,000 or 1.44% of total loans, compared
to $8,146,000 or 1.41% of total loans at December 31, 1998. The Bank did not
experience any loan losses during the nine months ended September 30, 1999.
Nonperforming loans at September 30, 1999 represented less than .01% of total
loans. Nonperforming loans consist of loans on nonaccrual and loans over 90 days
past due as to principal and interest and still in an accrual status. The
allowance for loan losses is maintained at a level considered appropriate by
management, based on its estimate of probable losses in the loan portfolio. At
September 30, 1999, the Bank had no impaired loans.

Securities available for sale totaled $218,649,000 or 23.7% of total assets at
September 30, 1999. The investment quality of the securities portfolio remains
very high with 82.1% of the portfolio in U.S. Treasury and Agency securities.
Furthermore, the Bank has no investments in high-risk derivative instruments.
The Banks portfolio has a weighted average life to maturity of approximately
2.7 years. Due to the general rise in interest rates, the total market value of
the portfolio decreased $3,940,000 (net of tax) during the nine months ended
September 30, 1999.

The Companys primary asset is its subsidiary bank, which is in its eleventh
year of operation. During the third quarter and for the nine months ended
September 30, 1999, the Bank continued to experience an increase in net
deposits. Deposits increased $23,897,000 or 3.3% for the third quarter and
$80,506,000 or 12.1% during the nine months ended September 30, 1999.

At the May 5, 1999 Annual Meeting, shareholders approved a 3-for-1 stock split
to shareholders of record as of June 25, 1999. The 3-for-1 stock split was
payable July 15, 1999. All earnings per share and cash dividend per share
numbers, average and actual shares outstanding and the par value of common stock
shares have been retroactively restated.

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##### Table of Contents



CAPITAL HOLDINGS, INC.

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

Consolidated net income for the third quarter of 1999 was $2,604,000 or $.42 per
diluted share, and $6,964,000 or $1.11 per diluted share for the nine months
ended September 30, 1999. This compares to $2,158,000 or $.35 per diluted share
for the third quarter of 1998, and $5,876,000 or $.96 per diluted share for the
nine months ended September 30, 1998. The increase in income before provision
for federal income taxes, excluding securities gains, for the nine months ended
September 30, 1999, represents an 18.2% increase over the same period of 1998.
This increase is a direct result of growth in earning assets, careful attention
to noninterest expenses and an increase in fees collected on lending
transactions. The effective income tax rate of 32.4% for the nine months ended
September 30, 1999 remained comparable to the same period last year.

Operating expenses of the Company have increased in absolute dollars to support
the continued growth of the Bank. As a percentage of average assets, net
overhead has decreased slightly from 1.72% for the year ended December 31, 1998,
to 1.70% for the nine months ended September 30, 1999. The Companys efficiency
ratio was 48% for the nine months ended September 30, 1999. Salaries and
benefits represent 52.5% of other expenses for the third quarter of 1999,
compared to 53.3% for the third quarter of 1998. Salary expense for the nine
months ended September 30, 1999 increased 20.2% over the same period for 1998.
Staff levels have increased from 106 to 123 (full time equivalents) over the
past 12 months, to accommodate the increased growth of the bank. Average assets
per employee has increased from $6,793,000 at December 31, 1998, to $6,882,000
at September 30, 1999.

The Companys Tier 1 Capital ratio was 8.52%, the Total Capital ratio was 9.77%,
and the Leverage ratio was 6.88% at September 30, 1999, compared to regulatory
capital requirements of 4%, 8% and 4%, respectively. These ratios are well in
excess of the regulatory capital requirements. At the Bank level, the Tier 1
Capital ratio was 7.58%, the Total Capital ratio was 10.73% and the Leverage
ratio was 6.13% at September 30, 1999. The Company has announced a $24,300,000
common stock offering which it expects to complete in the fourth quarter of
1999.

Shareholders equity has continued to increase from retained earnings of net
income. An $.08 per share cash dividend was declared on March 31, 1999, June 30,
1999 and September 30, 1999, payable April 25, 1999, July 25, 1999 and October
25, 1999, respectively. Cash dividends declared represented approximately 21% of
year-to-date net income.

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##### Table of Contents



CAPITAL HOLDINGS, INC.

MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONAND RESULTS OF OPERATIONS

In June 1998, the FASB issued Statement No. 133. Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for hedging activities and for derivative instruments,
including certain derivative instruments embedded in other contracts. This
statement requires a company to recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
fair value, cash flow, or foreign currency hedge. The accounting for changes in
the fair value of a derivative (i.e. gains and losses) depends on the intended
use of the derivative and the resulting designation. With the issuance of FASB
Statement No. 137, the effective date of FASB Statement No. 133 changes to
include all fiscal quarters of fiscal years beginning after June 15, 2000.
Presently the Company does not utilize derivative or related types of financial
instruments except for certain Federal agency collateralized mortgage
obligations. Therefore, this Statement is not anticipated to have a material
impact on the Company.

Year 2000

The Company initiated a company-wide project to prepare its computer systems,
application and infrastructure for Year 2000 compliance. The following
discussion of the implications of the Year 2000 issue for the Company contains
numerous forward-looking statements based on inherently uncertain information.
The cost of the project and the date on which the Company plans to complete the
internal Year 2000 modifications are based on managements best estimates, which
management derived utilizing a number of assumptions of future events including
the continued availability of internal and external resources, including
employees, third party modifications and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ.

In 1996, management determined that many of the Companys critical processes
might not be ready to operate normally in the year 2000 and beyond without
remediation. Since then, the Company completed an assessment and efforts began
to correct and validate compliance. In 1997, the Company alerted its business
customers of the Year 2000 problem and assessed the readiness preparations of
its major customers and suppliers. Resolution of the Year 2000 problem is among
the Companys highest priorities.

10



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##### Table of Contents



CAPITAL HOLDINGS, INC.

MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONAND RESULTS OF OPERATIONS

The Company prepared a project plan, identified its major application and
processing systems, and is using internal and external resources to modify or
replace nonready systems. The Company tested identified critical systems for
readiness as part of this process. In addition, the Company evaluated customers
and vendors who have significant relationships with the Company to determine
whether they are preparing and will be ready for the Year 2000. The Company
considered the potential failure of those customers to be adequately prepared as
part of the credit and review process. However, there can be no guarantee that
the remediation of the systems of the Companys vendors or customers will be
completed on a timely basis.

The Company upgraded computer hardware and software during 1998 to meet its
strategic plan of enhancing its products and services from a competitive
viewpoint. This decision was not related to Year 2000 compliance issues. The
newly installed systems are Year 2000 compliant. The cost of these systems was
approximately $600,000 which was capitalized. The Company has reviewed other
systems, including desktop computers and facilities-related items for Year 2000
compliance. Anticipated costs related to the remaining hardware and software
purchases, associated reprogramming, and remedial actions did not exceed
$100,000 in 1998 nor is it expected to exceed that amount in 1999 or 2000. The
Company will fund the costs through normal operating cash flow. The project is
staffed primarily with internal staff redeployed from less time-sensitive
assignments.

The Company is reliant on suppliers and customers, and we are addressing Year
2000 issues with both groups. As of December 31, 1998, we had identified
critical vendors and had completed formalized risk assessments of their Year
2000 readiness plans and status. The Company continues to communicate with its
critical vendors and monitor their readiness.

The Company is also reliant on its customers to make the necessary preparations
for Year 2000 so that their business operations will not be interrupted, as an
interruption could threaten their ability to honor financial commitments. The
Company has identified approximately 300 relationships, consisting of borrowers,
capital market counter parties, funding sources, and large depositors as having
financial volumes sufficiently large to warrant inquiry as to Year 2000
preparation. The Company had substantially completed a formal assessment of risk
based on these initial reports as of December 31, 1998. Customers found to have
a significant risk of not being ready for Year 2000 are encouraged to make the
necessary effort. The Company is undertaking measures to minimize risk with
those that appear to pose a significant risk. Quarterly reviews and follow-up
assessments of customers have continued throughout 1999.

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CAPITAL HOLDINGS, INC.

MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONAND RESULTS OF OPERATIONS

The Companys Year 2000 change program includes the active involvement of senior
executives as well as seasoned project managers from throughout the company.
Senior executives, the board of directors and a project steering committee
regularly review the overall program. The federal and state agencies that
regulate the banking industry also monitor the program. The Companys outside
internal audit firm also reviewed the Companys project status.

The Company grouped the principal risks associated with the Year 2000 problem
into three categories. The first is the risk that the Company does not
successfully ready its operations for the Year 2000. The Company, like other
financial institutions, is heavily dependent on its computer systems. Year 2000
compliant systems have already been implemented and tested and management
believes it will be able to make any additional minor necessary corrections in a
timely manner.

Computer failure of third parties may also impact the Companys operations. The
most serious impact on the Companys operations from suppliers would result if
basic services such as telecommunications, utilities, and services provided by
other financial institutions and governmental agencies were disrupted. While the
Company has assessed its suppliers, it is not possible to accurately estimate
the likelihood of significant disruptions among its suppliers.

Operational failures among the Companys sources of major funding and larger
borrowers could affect their ability to continue to provide funding or meet
obligations when due. It is not possible to accurately estimate the likelihood,
or potential impact, of significant disruptions among the Companys funding
sources and obligors at this time.

The Company has developed contingency plans and business resumption contingency
plans specific to the Year 2000. Business resumption contingency plans address
the actions that would be taken if critical business functions can not be
carried out in the normal manner due to system or supplier failure.

The Company is developing plans designed to coordinate the efforts of its
personnel and resources in addressing any Year 2000 problems that become known
after December 31, 1999.

12



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##### Table of Contents



CAPITAL HOLDINGS, INC.

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

Forward-Looking Statements

The foregoing disclosure contains forward-looking statements within
the meaning of the Securities Act of 1933 and the Securities Exchange Act of
1934, both as amended, with respect to anticipated future financial performance.
These forward looking statements include plans, expectations and projections,
including the impact of Year 2000, that are subject to numerous assumptions,
risks and uncertainties. These risks and uncertainties include unanticipated
changes in the competitive environment, relationships with third-party vendors
and clients, and certain other factors discussed in this report. Actual results
could differ materially from those contained in or implied by the Companys
statements.







PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

|    |  |                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits                                                                                                                                                     
|   
|   
|   
|   
|    |  | 27 Financial Data Schedule                                                                                                                                   
|   
|   
|   
|   
|(b) |  | A report on Form 8-K was filed with the Securities and
Exchange Commission on August 4, 1999, related to the
three-for-one stock split payable July 15, 1999.

13



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##### Table of Contents









SIGNATURES

Pursuant to the requirements for the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                                              |  |                                                                                                  
|--------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                              |  | CAPITAL HOLDINGS, INC.                                                                           
|                                             
|Date  November 15, 1999
          |  | /s/ David L. Mead

David L. Mead
Chief Financial Officer, Senior Vice President

14