<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission file number 333-14355
Decatur First Bank Group, Inc.
------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2254289
- ------------------------ ------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1120 Commerce Drive
Decatur, Georgia 30030
- ------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
404-373-1000
------------------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
---- ----
Common stock, par value $5 per share: 941,544 shares
outstanding as of November 9, 1998
Transitional Small Business Disclosure Format
(check one)
Yes No XX
---- ----
<PAGE>
DECATUR FIRST BANK GROUP, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (unaudited) at September 30, 1998 3
Statement of Operations (unaudited) for the Three Months
and the Nine Months Ended September 30, 1998 4
Statement of Comprehensive Income (unaudited) for the
Three Months and the Nine Months Ended September 30, 1998 5
Statement of Cash Flows (unaudited) for the Nine
Months Ended September 30, 1998 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the forward-
looking statements as a result of various factors discussed herein and those
factors discussed in detail in the Company's filings with the Securities and
Exchange Commission.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DECATUR FIRST BANK GROUP, INC.
Balance Sheet
September 30, 1998
(Unaudited)
Assets
------
Cash and due from banks $ 1,709,132
Federal funds sold 3,630,000
-----------
Cash and cash equivalents 5,339,132
Investment securities available for sale 15,503,558
Investment securities held to maturity 1,596,812
Loans, net 7,210,960
Premises and equipment, net 949,025
Accrued interest receivable and other assets 351,977
-----------
$30,951,464
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 4,755,256
Interest-bearing 17,474,524
-----------
Total deposits 22,229,780
Accrued interest payable and other liabilities 102,567
-----------
Total liabilities 22,332,347
-----------
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding -
Common stock, $5 par value; authorized
10,000,000 shares; issued and outstanding
941,924 shares 4,709,620
Additional paid-in capital 4,669,936
Accumulated deficit (901,819)
Unrealized gain on securities available for sale 141,380
-----------
Total stockholders' equity 8,619,117
-----------
$30,951,464
===========
See accompanying notes to financial statements.
-3-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statement of Operations
For the Three Months and the Nine Months Ended September 30, 1998
and the Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 1998 September 1998 September 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 163,376 372,624 2,485
Interest on federal funds sold 51,289 194,770 51,262
Investment securities 229,461 576,233 120,446
--------- ---------- ---------
Total interest income 444,126 1,143,627 174,193
--------- ---------- ---------
Interest expense:
Deposits 163,666 391,890 3,188
Other borrowings - - 21,887
--------- ---------- ---------
Net interest income (expense) 280,460 751,737 149,118
Provision for loan losses 63,800 143,800 5,400
--------- ---------- ---------
Net interest income after provision
for loan losses 216,660 607,937 143,718
--------- ---------- ---------
Other income:
Service charges on deposit accounts 33,045 68,194 -
Gain on sale of loans 33,954 33,954 -
Other operating income 14,735 28,670 1,497
--------- ---------- ---------
Total other income 81,734 130,818 1,497
--------- ---------- ---------
Other expense:
Salaries and other personnel expense 202,252 517,922 197,227
Net occupancy and equipment expense 45,852 136,818 51,602
Other operating expense 188,797 439,968 164,982
--------- ---------- ---------
Total other expense 436,901 1,094,708 413,811
--------- ---------- ---------
Net loss $(138,507) (355,953) (268,596)
========= ========== =========
Loss per common share:
Average common shares outstanding (941,552) (941,547) 941,544
Net loss per share $ (0.15) (0.38) (0.29)
========= ========== =========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statement of Comprehensive Income
For the Three Months and the Nine Months Ended September 30, 1998
and the Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 1998 September 1998 September 1997
------------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net loss $(138,507) (355,953) (268,596)
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available-for-sale:
Unrealized gains (losses) arising
during the period 153,291 (144,878) 1,043
Less: Reclassification adjustment
for gains included in net earnings - - -
--------- --------- ----------
Other comprehensive income 153,291 (144,878) 1,043
--------- --------- ----------
Comprehensive income (loss) 14,784 (211,075) (267,553)
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (355,953) (268,608)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 143,800 5,400
Provision for stock awards 3,800 -
Depreciation, amortization and accretion 94,679 -
Change in:
Other (149,678) (64,171)
------------ -----------
Net cash used by operating activities (263,352) (327,379)
------------ -----------
Cash flows from investing activities:
Proceeds from maturities and paydowns 2,240,000 -
of investment securities
Purchases of investment securities held to maturity - (3,287,801)
Purchases of investment securities available for sale (10,639,552) (1,853,474)
Change in loans (5,823,560) (262,661)
Purchases of premises and equipment (65,423) (802,061)
------------ -----------
Net cash used by investing activities (14,288,535) (6,205,997)
------------ -----------
Cash flows from financing activities:
Net change in deposits 13,564,228 2,024,674
Proceeds from sale of common stock - 9,375,756
Redemption of organizational share - (10)
Proceeds from note payable - (200,000)
------------ -----------
Net cash provided by financing activities 13,564,228 11,200,420
------------ -----------
Net change in cash and cash equivalents (987,659) 4,667,044
Cash and cash equivalents at beginning of the period 6,326,791 23,935
------------ -----------
Cash and cash equivalents at end of period $ 5,339,132 4,690,979
============ ===========
Noncash investing activities:
Change in unrealized loss on securities available for sale, net of tax 144,878 1,043
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
--------------------------------------
Decatur First Bank Group, Inc. (the Company), a bank holding company, owns
100% of the outstanding common stock of Decatur First Bank (the Bank),
which operates in the Decatur, Georgia area. The Bank opened for business
on September 2, 1997, and prior to that date activities of the Company were
devoted solely to securing banking facilities, raising capital and
procuring management and other personnel.
The consolidated financial statements include the accounts of the Company
and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation.
The interim financial statements included herein are unaudited but reflect
all adjustments which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for
the interim period presented. All such adjustments are of a normal
recurring nature. The results of operations for the period ended September
30, 1998 are not necessarily indicative of the results of a full year's
operations.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles (GAAP) and with general practices within the banking industry.
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ significantly from
those estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determinations of the allowance for loan
losses, the valuation of real estate acquired in connection with or in lieu
of foreclosure on loans, and valuation allowances associated with deferred
tax assets, the recognition of which are based on future taxable income.
-7-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1998
FINANCIAL CONDITION
Total assets at September 30, 1998 were $30,951,000 representing a
$13,325,000 (76%) increase from December 31, 1997. Deposits increased
$13,564,000 (157%) from December 31, 1997. Loans increased $5,680,000 (371%).
The allowance for loan losses at September 30, 1998 totaled $171,724,
representing 2.33% of total loans compared to December 31, 1997 totals of
$32,000 which represented 2.05% of total loans. Cash and cash equivalents
decreased $988,000 from December 31, 1997.
There were no related party loans or other loans which were considered
nonperforming at September 30, 1998.
RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, the Bank's yield on earning
assets has been 6.62%. The cost of funding sources for the nine month period
ended September 30, 1998, was 3.96%. While net interest spread is 2.66%, net
interest margin, which considers the effect of non-interest bearing deposits,
was 4.35%.
Additionally, during the quarter ended September 30, 1998, the Company wrote
off the remaining balance of its organization costs associated with the initial
start-up of the Company in compliance with Statement of Position 98-5. The total
charge taken during the three months ended September 30, 1998 was $67,000, with
$75,000 being recognized year-to-date.
CAPITAL
The following tables present Decatur First Bank Group, Inc.'s regulatory
capital position at September 30, 1998:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 61.39%
Tier 1 Tangible Capital minimum requirement 4.00%
-----
Excess 57.39%
=====
Total Capital, Actual 62.64%
Total Capital minimum requirement 8.00%
-----
Excess 54.64%
=====
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 28.36%
Minimum leverage requirement 4.00%
-----
Excess 24.36%
=====
-8-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
For the Nine Months Ended September 30, 1998
YEAR 2000
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The approach of the Year 2000 presents a problem in
that many computer programs have been written using two digits rather than four
to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the Year
2000. For example, computer systems may compute payment, interest, delinquency
or other figures important to the operations of the Company based on the wrong
date. This could result in internal system failure or miscalculation, and also
creates risk for the Company from third parties with whom the Company deals on
financial transactions.
The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. The Company has developed a Year 2000 Readiness plan
based in part on the guidelines and timetables issued by the FDIC. The
Company's Readiness plan focuses on four primary areas: (1) service providers,
(2) in-house computers and systems located at the Bank's office, (3) third-party
and customer relationships, and (4) contingency planning. The Company has
designated a Year 2000 Committee, headed by its Cashier/Chief Operating Officer
who is making Year 2000 readiness assessments and remediation where necessary.
The Company has also established a Year 2000 Steering Committee consisting of
its President/CEO and three additional Board members to monitor activities and
to offer support and guidance.
Service Providers. The Company has identified all mission critical service
providers. Of the four considered critical, the Company has a detailed plan
written to facilitate testing of mutually transmitted information for three of
them. As to the fourth, the Company has elected to change to a data processing
company that is well established and is currently using software designated as
compliant. Conversion to this company is scheduled to occur during the first
quarter of 1999. A written testing plan for this company should be completed
before year-end 1998.
The Company is actively communicating with and monitoring the progress of all
providers and vendors to assess the impact of Year 2000 issues on their
companies and their ability to provide products and services. The Company will
consider new business relationships with alternate providers or vendors if
necessary.
The Company has contracted with a well-known and respected CPA firm to act as
the third party review of all test results. These CPAs will evaluate the
technical information in these results and offer informed suggestions and or
recommendations.
In-house Computers and Systems. The Company has performed a comprehensive
inventory of all equipment, to include the vaults, computers and systems, such
as security, telephone, heating and air conditioning. The computers were tested
using software designed for that purpose as compliant. The Company contacted
the vendors of its equipment and systems and during testing did not identify any
embedded microchips to be century date sensitive.
Third Party and Customer Relationships. The Company is attempting to maintain
communication with suppliers and vendors to determine the impact of such third
parties' failure to remediate their own Year 2000 issues. These third parties
include other financial institutions, office supply vendors and telephone,
electric and other utility companies. The Company is encouraging its customers
to conduct their own Year 2000 assessment and take appropriate steps to become
Year 2000 compliant.
The Company has completed an assessment of its depository and loan relationship
customers. This assessment process has been adopted as on going and is a
required procedure in the underwriting of any commercial loan. Additionally,
the Company encourages its larger and commercial borrowers to assess the
potential impact of Year 2000 on them and their ability to remain current on
loan repayments.
-9-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
YEAR 2000, CONTINUED
Contingency Plans. As part of the Company's normal business practice, it
maintains contingency plans to follow in the event of emergency situations, some
of which could arise from Year 2000-related problems. The Company is formulating
a detailed Year 2000 contingency plan, which will assess several possible
scenarios to which the Company may be required to react. The Company's formal
Year 2000 contingency plan is expected to be completed by the end of first
quarter 1999.
Financial Implications. The Company believes that, since the majority of its
equipment is relatively new, the Year 2000 problem will not pose significant
internal operational problems or generate material additional expenditures.
Maintenance, testing and modification costs will be expensed as incurred. The
Company does not expect the amounts required to be expensed to resolve Year 2000
issues to have a material effect on its financial position or results of
operations. The Company currently estimates that the costs of assessing,
testing and remediation of Year 2000 issues will total approximately $50,000.
The anticipated costs associated with the Company's Year 2000 compliance program
do not include time and costs that may be incurred as a result of any potential
failure of third parties to become Year 2000 compliant or costs to implement the
Company's contingency plans.
Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of the Company and the Bank. External factors, which
include but are not limited to electric, telephone and water service, are beyond
the control of the Company and the failure of such systems could have a negative
impact on the Company, its customers and third parties on whom the Company
relies for its day-to-day operations. The business of many of the Company's
customers may be negatively affected by the Year 2000 issue, and any financial
difficulties incurred by the Company's customers in connection with the century
change could negatively affect such customers' ability to repay loans to the
Company. The failure of the Bank's computer system or applications or those
operated by customers or third parties could have a material adverse effect on
the Company's results of operations and financial condition.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Company's Year 2000 compliance
efforts and the impact of Year 2000 issues on the Company's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and forward-
looking statements, many of which are beyond the control of the company. Some
of these factors include, but are not limited to representations by the
Company's vendors, providers, counterparties, technological advances, economic
considerations and consumer perceptions. The Company's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.
-10-
<PAGE>
PART II. OTHER INFORMATION
DECATUR FIRST BANK GROUP, INC.
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
Pursuant to Rule 14a-4(c)(1) promulgated under the Securities Exchange
Act of 1934, as amended, shareholders desiring to present a proposal
for consideration at the Company's 1999 Annual Meeting of Shareholders
must notify the Company in writing at its principal office at 1120
Commerce Drive, Decatur, Georgia 30030 of the contents of such proposal
no later than February 20, 1999. Failure to timely submit such a
proposal will enable the proxies appointed by management to exercise
there discretionary voting authority when the proposal is raised at the
Annual Meeting of Shareholders without any discussion of the matter in
the proxy statement.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-11-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
SIGNATURES
Pursuant to the requirements of 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.
DECATUR FIRST BANK GROUP, INC.
By: /s/ Judy B. Turner
---------------------------
Judy B. Turner
President, Chief Executive Officer and
Principal Accounting Officer
Date: November 12, 1998
-------------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,709
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,630
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,504
<INVESTMENTS-CARRYING> 1,597
<INVESTMENTS-MARKET> 0
<LOANS> 7,383
<ALLOWANCE> 172
<TOTAL-ASSETS> 30,951
<DEPOSITS> 22,230
<SHORT-TERM> 0
<LIABILITIES-OTHER> 103
<LONG-TERM> 0
4,710
0
<COMMON> 0
<OTHER-SE> 3,909
<TOTAL-LIABILITIES-AND-EQUITY> 30,951
<INTEREST-LOAN> 373
<INTEREST-INVEST> 576
<INTEREST-OTHER> 195
<INTEREST-TOTAL> 1,144
<INTEREST-DEPOSIT> 512
<INTEREST-EXPENSE> 392
<INTEREST-INCOME-NET> 752
<LOAN-LOSSES> 144
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,095
<INCOME-PRETAX> (356)
<INCOME-PRE-EXTRAORDINARY> (356)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (356)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
<YIELD-ACTUAL> 6.62
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32
<CHARGE-OFFS> 4
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 172
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
