<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, 1999
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 000-24139
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: 942,184 shares
outstanding as of November 12, 1999
Transitional Small Business Disclosure Format
(check one)
Yes No XX
---- ----
<PAGE>
DECATUR FIRST BANK GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (unaudited) at September 30, 1999 3
Statements of Operations (unaudited) for the Three Months
and the Nine Months Ended September 30, 1999 and 1998 4
Statements of Comprehensive Income (unaudited) for the Nine
Months Ended September 30, 1999 and 1998 5
Statements of Cash Flows (unaudited) for the Nine Months
Ended September 30, 1999 and 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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 Decatur First, its directors or its officers with
respect to, among other things: (i) Decatur Firs's financing plans; (ii) trends
affecting Decatur First's financial condition or results of operations; (iii)
Decatur First's growth strategy and operating strategy; and (iv) the declaration
and payment of dividends. Investors are cautioned that any such forward-looking
statement is not a guarantee of future performance and involves 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 Decatur First's
filings with the Securities and Exchange Commission.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DECATUR FIRST BANK GROUP, INC.
Balance Sheet
September 30, 1999
(Unaudited)
Assets
------
Cash and due from banks $ 1,802,113
Federal funds sold 660,000
-----------
Cash and cash equivalents 2,462,113
Investment securities available for sale 17,801,839
Loans, net 19,172,249
Premises and equipment, net 1,893,129
Accrued interest receivable and other assets 368,843
-----------
$41,698,173
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing $ 7,765,987
Interest-bearing 25,934,920
-----------
Total deposits 33,700,907
Accrued interest payable and other liabilities 165,898
-----------
Total liabilities 33,866,805
-----------
Stockholders' equity:
Preferred stock, no par value; authorized
2,000,000 shares; no issued shares -
Common stock, $5 par value; authorized
10,000,000 shares; issued 942,324 shares 4,711,620
Additional paid-in capital 4,672,936
Accumulated deficit (1,076,519)
Treasury stock (140 shares), at cost (1,600)
Accumulated comprehensive income (475,069)
-----------
Total stockholders' equity 7,831,368
-----------
$41,698,173
===========
See accompanying notes to financial statements.
-3-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Operations
For the Three Months and the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------ -----------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
-------- -------- ---------- ---------
Interest income:
Interest and fees on loans $423,556 163,376 $ 981,675 372,624
Interest on federal funds sold 34,497 51,289 97,025 194,770
Investment securities 250,280 229,461 831,002 576,233
-------- -------- ---------- ---------
Total interest income 708,333 444,126 1,909,702 1,143,627
Interest expense on deposits 236,295 163,666 671,239 391,890
-------- -------- ---------- ---------
Net interest income 472,038 280,460 1,238,463 751,737
Provision for loan losses 5,000 63,800 120,090 143,800
-------- -------- ---------- ---------
Net interest income after provision
for loan losses 467,038 216,660 1,118,373 607,937
-------- -------- ---------- ---------
Other income:
Service charges on deposit accounts 29,860 33,045 88,771 68,194
Securities losses (604) - (2,939) -
Gain on sales of loans 46,918 33,954 165,691 33,954
Other operating income 28,211 14,735 57,258 28,670
-------- -------- ---------- ---------
Total other income 104,385 81,734 308,781 130,818
-------- -------- ---------- ---------
Other expense:
Salaries and other personnel expense 252,732 202,252 677,885 517,922
Net occupancy and equipment expense 68,416 45,852 157,683 136,818
Other operating expense 169,563 188,797 552,757 439,968
-------- -------- ---------- ---------
Total other expense 490,711 436,901 1,388,325 1,094,708
-------- -------- ---------- ---------
Net earnings (loss) $ 80,712 (138,507) $ 38,829 (355,953)
======== ======== ========== =========
Earnings (Loss) per common share:
Average outstanding shares 942,034 941,552 942,184 941,547
Net earnings (loss) per share $.09 (0.15) $0.04 (0.38)
======== ======== ========== =========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Comprehensive Income
For the Nine Months Ended September 30, 1999 and 1998
1999 1998
--------- ---------
Net earnings (loss) 38,829 (355,953)
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available-for-sale:
Unrealized losses arising
during the period (564,220) (144,878)
Less: Reclassification adjustment
for losses included in net earnings (2,939) -
-------- --------
Other comprehensive income (567,159) (144,878)
-------- --------
Comprehensive income (loss) (528,330) (211,075)
======== ========
See accompanying notes to financial statements.
-5-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (38,830) (355,953)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Provision for loan losses 120,090 143,800
Depreciation, amortization and accretion 159,726 94,679
Securities losses 2,939 3,800
Change in other 111,516 (149,678)
----------- -----------
Net cash provided (used) by operating activities 433,101 (263,352)
----------- -----------
Cash flows from investing activities:
Proceeds from sales, maturities and paydowns
of investment securities available for sale 6,604,405 2,240,000
Purchases of investment securities available for sale (5,275,017) (10,639,552)
Change in loans (9,628,567) (5,823,560)
Purchases of premises and equipment (1,003,999) (65,423)
----------- -----------
Net cash used by investing activities (9,303,178) (14,288,535)
Cash flows from financing activities:
Net change in deposits 3,699,156 13,564,228
Issuance of stock awards 5,000 -
Purchase of treasury shares (1,600) -
----------- -----------
Net cash provided by financing activities 3,702,556 13,564,228
----------- -----------
Net change in cash and cash equivalents (5,167,521) (987,659)
Cash and cash equivalents at beginning of the period 7,629,634 6,326,791
----------- -----------
Cash and cash equivalents at end of period $ 2,462,113 5,339,132
=========== ===========
Noncash investing activities:
Change in unrealized loss on securities available for sale, net of tax $ (567,159) (144,878)
</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. (Decatur First), 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.
The consolidated financial statements include the accounts of Decatur First
and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation.
These interim financial statements 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 adjustments are of a normal recurring nature.
The results of operations for the period ended September 30, 1999 are not
necessarily indicative of the results of a full year's operations.
The accounting principles followed by Decatur First 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>
Item 2.
DECATUR FIRST BANK GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1999 and 1998
Financial Condition
Total assets at September 30, 1999 were $41,698,173 representing a
$3,252,073 (8.5%) increase from December 31, 1998. Deposits increased $3,699,156
(12.3%) from December 31, 1998. Net loans increased $9,508,477 (98.4%). The
allowance for loan losses at September 30, 1999 totaled $339,419, representing
1.74% of total loans compared to December 31, 1998 totals of $198,055 which
represented 2.0% of total loans. Cash and cash equivalents decreased $5,167,521
from December 31, 1998.
There were no related party loans or other loans which were considered
nonperforming at September 30, 1999.
Results of Operations
Net earnings for the nine months ended September 30, 1999 was $38,829,
compared to a net loss of $355,953 for the same period for 1998. The decrease in
net loss was primarily associated with an increase in net interest income
($487,000) as well as an increase in non-interest income ($178,000). These
increases were offset by $293,000 in additional other expenses.
For the nine months ended September 30, 1999, the Bank's yield on earning
assets was 7.03% while the cost of funding sources was 3.67%. While net interest
spread was 3.36%, net interest margin, which considers the effect of non-
interest bearing deposits, was 4.50%, an increase of 15 basis points as compared
to the same period in the prior year. Net interest margin increased compared to
the prior year as non-interest bearing deposits increased relative to total
deposits. Net interest income in the aggregate increased for the nine months
ended September 30, 1999, over the same period for 1998 primarily due to the
volume of earning assets and interest bearing liabilities. Management monitors
the rate sensitivity of earning assets and interest-bearing liabilities over the
entire life of these instruments, but places particular emphasis on the first
year.
Other income increased approximately $178,000 for the nine months ended
September 30, 1999, compared to the same period for 1998. This increase was
primarily associated with an increase in service charges on deposit accounts of
approximately $21,000 related to an increase in the number of accounts and a
$132,000 increase in gains on the sale of SBA loans.
Other expense increased approximately $293,000 for the nine months ended
September 30, 1999, compared to the same period for 1998, primarily due to an
increase in the volume of business, which led to additional expense necessary to
service new business.
-8-
<PAGE>
Capital
The following tables present Decatur First's regulatory capital position at
September 30, 1999:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 26.93%
Tier 1 Tangible Capital minimum requirement 4.00%
-----
Excess 22.93%
=====
Total Capital, Actual 28.03%
Total Capital minimum requirement 8.00%
-----
Excess 20.03%
=====
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 19.99%
Minimum leverage requirement 4.00%
-----
Excess 15.99%
=====
Year 2000
Decatur First utilizes and is dependent upon data processing systems and
software to conduct its business. The approach of the Year 2000 presents an
issue in that many computer programs have been written using two digits rather
than four to define the applicable year. Computer programs that have date-
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 amounts important to the operations of Decatur First based
on the wrong date. This could result in internal system failure or
miscalculation, and also creates risk for Decatur First from third parties with
whom Decatur First deals on financial transactions.
The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. Decatur First has developed a Year 2000 Readiness plan
based in part on the guidelines and timetables issued by the FDIC. Decatur
First'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. Decatur First has
designated a Year 2000 Committee, headed by its Cashier/Chief Operating Officer
who is making Year 2000 readiness assessments and remediation where necessary.
Decatur First 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. Decatur First has identified and performed appropriate
testing of all mission critical service providers.
Decatur First 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. Decatur First will
consider new business relationships with alternate providers or vendors if
necessary.
Decatur First has contracted with a well-known and respected CPA firm to act as
the third party reviewer of all test results. This CPA firm will evaluate the
technical information in these results and offer informed suggestions and/or
recommendations.
-9-
<PAGE>
Year 2000, continued
In-house Computers and Systems. Decatur First 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 the purpose of determining Year 2000 compliance and
were deemed compliant. Decatur First 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. On an on going basis, Decatur First
attempts to maintain communication with suppliers and vendors to determine the
impact of these 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. Decatur First is
encouraging its customers to conduct their own Year 2000 assessment and take
appropriate steps to become Year 2000 compliant.
Decatur First has completed an assessment of its depository and loan customer
relationships. This assessment process is on going and is a required procedure
in the underwriting of any new commercial loan. Additionally, Decatur First
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.
Additionally, we have determined what we believe our liquidity needs will be
during the millennium change and are taking steps to insure we will have
adequate cash to meet these needs.
Contingency Plans. As part of Decatur First'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. Decatur First has
formulated a detailed Year 2000 contingency plan, which assesses several
possible scenarios to which Decatur First may be required to react.
Financial Implications. Decatur First 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. Decatur First currently estimates that the costs of assessing,
testing and remediation of Year 2000 issues will total approximately $50,000.
The anticipated costs associated with Decatur First'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 Decatur First's contingency plans.
Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of Decatur First and the Bank. External factors, which
include but are not limited to electric, telephone and water service, are beyond
the control of Decatur First and the failure of these systems could have a
negative impact on Decatur First, its customers and third parties on whom
Decatur First relies for its day-to-day operations. The business of many of
Decatur First's customers may be negatively affected by the Year 2000 issue, and
any financial difficulties incurred by Decatur First's customers in connection
with the century change could negatively affect such customers' ability to repay
loans to Decatur First. 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 Decatur First's results of operations and financial
condition.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to Decatur First's Year 2000 compliance
efforts and the impact of Year 2000 issues on Decatur First'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 Decatur First. Some
of these factors include, but are not limited to representations by Decatur
First's vendors, providers, counterparties, technological advances, economic
considerations and consumer perceptions. Decatur First'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 Decatur First's 2000 Annual Meeting of Shareholders must
notify Decatur First in writing at its principal office at 1120 Commerce
Drive, Decatur, Georgia 30030 of the contents of such proposal no later
than February 17, 2000. Failure to timely submit such a proposal will
enable the proxies appointed by management to exercise their 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: /s/ 11-15-99
------------------------------------
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,802
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 660
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,802
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 17,802
<LOANS> 19,511
<ALLOWANCE> (339)
<TOTAL-ASSETS> 41,698
<DEPOSITS> 33,701
<SHORT-TERM> 0
<LIABILITIES-OTHER> 166
<LONG-TERM> 0
0
0
<COMMON> 9,385
<OTHER-SE> (1,554)
<TOTAL-LIABILITIES-AND-EQUITY> 41,697
<INTEREST-LOAN> 982
<INTEREST-INVEST> 831
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 1,910
<INTEREST-DEPOSIT> 671
<INTEREST-EXPENSE> 671
<INTEREST-INCOME-NET> 1,238
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,388
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 39
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
<YIELD-ACTUAL> 7.03
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 198
<CHARGE-OFFS> 0
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 339
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
