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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For fiscal year ended DECEMBER 31, 1998
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[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________to _______________
Commission file number 000-24139
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DECATUR FIRST BANK GROUP, INC.
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(Name of Small Business Issuer in Its Charter)
GEORGIA 58-2254289
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1120 COMMERCE DRIVE, DECATUR, GEORGIA 30030
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(Address of Principal Executive Offices) (Zip Code)
404-373-1000
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO
PAR VALUE.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes X No ____
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or a information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year: $1,826,554
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days: $7,388,401 AS OF FEBRUARY 25, 1999.
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 941,924 AS OF MARCH 25, 1999.
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Transitional Small Business Disclosure format (check one): Yes ____
No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1998 are incorporated by reference into Part I and II. Portions of
the Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held
April 27, 1999, are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PART I ......................................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS.................................................................. 1
ITEM 2. DESCRIPTION OF PROPERTIES................................................................ 7
ITEM 3. LEGAL PROCEEDINGS........................................................................ 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 8
PART II ......................................................................................... 8
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.............................................................. 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 8
ITEM 7. FINANCIAL STATEMENTS..................................................................... 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 9
PART III ......................................................................................... 9
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............................... 9
ITEM 10. EXECUTIVE COMPENSATION................................................................... 9
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................................... 10
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................... 10
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.................................................. 10
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company was incorporated as a Georgia business corporation on August 2,
1996, and became a bank holding company by acquiring all of the Common Stock of
Decatur First Bank (the "Bank"). The Bank is the only subsidiary of the Company.
The Company was organized to facilitate the Bank's ability to serve its
customers' requirements for financial services. The holding company structure
provides flexibility for expansion of the Company's banking business through the
possible acquisition of other financial institutions and the provision of
additional banking-related services that a traditional commercial bank may not
provide under present laws. For example, banking regulations require the Bank to
maintain a minimum ratio of capital to assets. In the event that the Bank's
growth prevents it from maintaining this minimum ratio, the Company may borrow
funds, subject to capital adequacy guidelines of the Federal Reserve and
contribute them to the capital of the Bank and otherwise raise capital in a
manner unavailable to the Bank under the existing banking regulations.
The Company has no present plans to acquire any additional operating
subsidiaries. The Company may, however, make additional acquisitions in the
future in the event that the acquisitions are deemed to be in the best interests
of the Company and its shareholders. Such acquisitions, if any, will be subject
to certain regulatory approvals and requirements. See "Supervision and
Regulation--General."
THE BANK
GENERAL
The Bank began business in the third quarter of 1997 as a full-service
commercial bank. The Bank offers personal and business checking accounts,
interest-bearing checking accounts, savings accounts and various types of
certificates of deposit. The Bank also offers installment loans, real estate
loans, construction loans, second mortgage loans, commercial and Small Business
Administration loans and home equity lines of credit. In addition, the Bank
provides such services as official bank checks and money orders, Mastercard
credit cards, safe deposit box, traveler's checks, bank-by-mail, direct deposit
of payroll and Social Security checks and U.S. Savings Bonds.
PHILOSOPHY
The philosophy of the Bank's management is to emphasize prompt and
responsive personal service to residents of Decatur, Georgia, as well as other
communities located in DeKalb County, in order to attract customers and acquire
market share controlled by other financial institutions in the Bank's market
area. Management believes that the Bank offers residents of Decatur and
surrounding counties the benefits associated with a locally owned and managed
community bank. Management has implemented an active call program, by which
officers and directors promote these efforts by personally describing the
products, services and philosophy of the Bank to both existing customers and new
business prospects. The Bank's directors are active members in the Decatur
community and their continued active community involvement provides them with an
opportunity to promote the Bank and its products and services.
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MARKET AREA AND COMPETITION
The Bank is located in Decatur, Georgia. The Bank's primary market area is
defined as the five mile radius of the Center of Decatur, Georgia. Decatur is
the county seat of DeKalb County and is located 12 minutes east of downtown
Atlanta, Georgia. Decatur is four square miles in size and there are over 12
distinct neighborhoods within the City of Decatur. The Bank competes for
deposits and loan customers with other financial institutions whose resources
are equal to or greater than those available to the Bank and the Company.
Decatur is served by eleven commercial banks, two savings institutions and four
credit unions, which, collectively, operate 38 banking offices. These financial
institutions offer all of the services that the Bank offers.
LOAN PORTFOLIO
LENDING POLICY. The Bank was established to support Decatur and
surrounding areas of DeKalb County. The Bank aggressively seeks creditworthy
loans within a limited geographic area. The Bank's primary commercial lending
function is to make consumer loans to individuals and commercial loans to small
and medium-sized businesses and professional concerns. In addition, the bank
makes real-estate-related loans, including construction loans for residential
and commercial properties, and primary and secondary mortgage loans for the
acquisition or improvement of personal residences. The Bank avoids
concentrations of loans to a single industry or based on a single type of
collateral.
The Bank's legal lending limits are 15% of its statutory capital base for
unsecured loans and 25% of its statutory capital base for secured loans. The
Bank's statutory capital base is determined by the sum of its common stock,
paid-in capital, appropriated retained earnings, and capital debt, or the amount
of net assets of the Bank, whichever is the lower amount. As of December 31,
1998, the Bank's legal lending limits were approximately $1,253,445 for
unsecured loans and approximately $2,089,074 for secured loans. While the Bank
generally employs more conservative lending limits, the Board of Directors has
discretion to lend up to the legal lending limits as described above.
CONSUMER LOANS. The Bank makes consumer loans, consisting primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements and investments. Risks
associated with consumer loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems.
COMMERCIAL LOANS. The Bank's commercial lending is directed principally
toward small to mid-size businesses whose demand for funds falls within the
legal lending limits of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Risks associated with these loans can be significant and
include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and changes in interest rates.
REAL ESTATE LOANS. The Bank makes and holds real estate loans, consisting
primarily of single-family residential construction loans for one-to-four unit
family structures. The Bank requires a first lien position on the land
associated with the construction project and offers these loans to professional
building contractors and homeowners. Loan disbursements require on-site
inspections to assure the project is on budget and that the loan proceeds are
being used for the construction project and not being diverted to another
project. The loan-to-value ratio for such loans are predominantly 80% of the
lower of the as-built appraised value or project cost, and a maximum of 90% if
the loan is amortized. Loans for construction can present a high degree of risk
to the lender, depending upon, among other things, whether the builder can sell
the home to a buyer, whether the buyer can obtain permanent financing, whether
the transaction produces income in the interim and the nature of changing
economic conditions.
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INVESTMENTS. In addition to loans, the Bank makes other investments
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States and other taxable securities. No
investment in any of those instruments will exceed any applicable limitation
imposed by law or regulation.
DEPOSITS. The Bank offers a wide range of commercial and consumer deposit
accounts, including checking accounts, money market accounts, a variety of
certificates of deposit, and IRA accounts. The Bank employs an aggressive
marketing plan in the overall service area, a broad product line, and
competitive services as its primary means to attract deposits. The primary
sources of deposits are residents of, and businesses and their employees located
in, the Bank's market area. Deposits are obtained through personal solicitation
by the Bank's officers and directors, direct mail solicitations and
advertisements published in the local media. Deposits are generated by offering
a broad array of competitively priced deposit services, including demand
deposits, regular savings accounts, money market deposits (transaction and
investment), certificates of deposit, retirement accounts, and other deposit or
funds transfer services which may be permitted by law or regulation and which
may be offered to remain competitive in the market.
ASSET AND LIABILITY MANAGEMENT. The Bank manages its assets and
liabilities to provide an optimum and stable net interest margin, a profitable
after-tax return on assets and return on equity, and adequate liquidity. These
management functions are conducted within the framework of written loan and
investment policies adopted by the Bank. The Bank attempts to maintain a
balanced position between rate sensitive assets and rate sensitive liabilities.
Specifically, it charts assets and liabilities on a matrix by maturity,
effective duration, and interest adjustment period, and endeavors to manage any
gaps in maturity ranges.
EMPLOYEES
At December 31, 1998, the Company employed 14 full-time employees. The
Company considers its relationship with its employees to be excellent.
SUPERVISION AND REGULATION
The following discussion describes the material elements of the regulatory
framework that applies to banks and bank holding companies and provides certain
specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as currently in effect. As a result, the Company and any future non-bank
subsidiaries the Company establishes is and will be subject to the supervision,
examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve.
The Bank Holding Company Act requires every bank holding company to obtain
the Federal Reserve's prior approval before: (1) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after the
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the bank's voting shares; (2) it or any of its non-bank
subsidiaries may acquire all or substantially all of the assets of any bank; or
(3) it may merge or consolidate with any other bank holding company.
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The Bank Holding Company Act also provides that the Federal Reserve may not
approve any transaction that would result in or tend to create a monopoly,
substantially lessen competition or otherwise function as a restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. The Federal Reserve's consideration of financial resources generally
focuses on capital adequacy, which is discussed below.
The Company and any other bank holding company located in Georgia may
acquire a bank located in any other state, and any bank holding company located
outside of Georgia may acquire any Georgia-based bank, regardless of state law
to the contrary. In either case, certain deposit-percentage, aging requirements,
and other restrictions apply. National and state-chartered banks may branch
across state lines by acquiring banks in other states. By adopting legislation
prior to June 1, 1997, a state could elect either to "opt in" and accelerate the
date after which interstate branching would be permissible or "opt out" and
prohibit interstate branching altogether. The Georgia Interstate Banking Act
provides that interstate acquisitions by or of institutions located in Georgia
are permitted in states that also allow national interstate acquisitions. The
Georgia Interstate Branching Act permits Georgia-based banks and bank holding
companies owning or acquiring banks outside of Georgia and all non-Georgia banks
and bank holding companies owning or acquiring banks in Georgia to merge any
lawfully acquired bank into an interstate branch network. The Georgia Interstate
Branching Act also allows banks to establish new branches throughout Georgia.
The Bank Holding Company Act generally prohibits the Company from engaging
in activities other than banking or managing or controlling banks or other
permissible subsidiaries. The Bank Holding Company Act also prohibits the
Company from acquiring or keeping direct or indirect control of any company
engaged in any activities other than those activities that the Federal Reserve
determines to be closely related to banking or managing or controlling banks. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the activity reasonably can be expected to produce
benefits to the public, such as greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. For example, the Federal Reserve has
determined that factoring accounts receivable, acquiring or servicing loans,
leasing personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance in connection
with credit transactions, and performing certain insurance underwriting
activities are permissible activities of bank holding companies. The Bank
Holding Company Act does not place territorial limitations on permissible
non-banking activities of bank holding companies. Despite prior approval, the
Federal Reserve may order a holding company or its subsidiaries to terminate any
activity or ownership or control of any subsidiary when it has reasonable cause
to believe that the holding company's continued activity, ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiaries.
The Bank's deposits are insured by the FDIC to the maximum extent provided
by law. The Bank is also be subject to numerous state and federal statutes and
regulations that affect its business, activities and operations, and it is
supervised and examined by one or more state or federal bank regulatory
agencies.
The FDIC and the Georgia Department of Banking and Finance regularly
examine the operations of the Bank and have the authority to approve or
disapprove mergers, the establishment of branches, and similar corporate
actions. Both regulatory agencies also have the power to prevent the continuance
or development of unsafe or unsound banking practices or other violations of
law.
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PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from the Bank. The
principal source of the Company's cash flow, including cash flow to pay
dividends to its shareholders, is dividends that the Bank pays to the Company.
Statutory and regulatory limitations apply to the Bank's payment of dividends to
the Company as well as to the Company's payment of dividends to its
shareholders.
If, in the opinion of the federal banking regulator, the Bank were engaged
in or about to engage in an unsafe or unsound practice, the federal banking
regulator could require, after notice and a hearing, that the Bank cease and
desist from its practice. The federal banking agencies have indicated that
paying dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings. See "--Prompt Corrective Action" below.
Under the dividend restrictions imposed by federal and state law and the
conditions included in the Georgia Department of Banking and Finance's approval
of the Bank's Charter application, at December 31, 1998, the Bank could not
declare dividends to the Company.
The payment of dividends by the Company and the Bank may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines.
CAPITAL ADEQUACY
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve in the case of the Company and the
appropriate federal banking regulator in the case of the Bank. The Federal
Reserve has established two basic measures of capital adequacy for bank holding
companies -- a risk-based measure and a leverage measure. A bank holding company
must satisfy all applicable capital standards to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. At least one-half of total capital must comprise common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets.
This portion of total capital is referred to as Tier 1 Capital. The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves and is referred to as Tier 2 Capital. At December 31, 1998,
the Company's consolidated ratio of total capital to risk-weighted assets was
47.6% and its consolidated ratio of Tier 1 Capital to risk-weighted assets was
46.5%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet the specified
criteria including having the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of at least 3%,
plus an additional cushion of 100 to 200 basis points. The Company's leverage
ratio at December 31, 1998 was 24.2%. The guidelines also provide that bank
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holding companies experiencing internal growth, or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a bank
holding company's Tier 1 Capital leverage ratio, after deducting all
intangibles, and other indicators of capital strength in evaluating proposals
for expansion or new activities.
The Bank is subject to risk-based and leverage capital requirements adopted
by the FDIC, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. In addition, as a condition to granting the
Bank's charter, the Georgia Department of Banking and Finance requires the Bank
to maintain a Tier 1 Capital to assets ratio of at least 8% for the first three
years of the Bank's operation.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support, the Bank. This
support may be required at times when, without this Federal Reserve policy, the
Company might not be inclined to provide it. In addition, any capital loans by a
bank holding company to its subsidiary bank will be repaid only after its
deposits and certain other indebtedness are repaid in full. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a system of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system, the federal banking regulators
have established five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and are required to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, relating to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a
receiver or conservator for an institution that is critically undercapitalized.
The federal banking agencies have specified by regulation the relevant capital
level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
controlling holding company's obligation to fund a capital restoration plan is
limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking agency may treat an
undercapitalized institution in the same manner as it treats a significantly
undercapitalized institution, if it determines that those actions are necessary.
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At December 31, 1998, the Bank's capital level placed it in the well
capitalized category.
FDIC INSURANCE ASSESSMENTS
The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an
institution to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the institution's primary federal regulator provides
to the FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC determines an institution's insurance assessment rate based on
the institution's capital category and supervisory category. Under the
risk-based assessment system, there are nine combinations of capital groups and
supervisory subgroups to which different assessment rates are applied.
Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup.
Effective January 1, 1997, the FDIC imposed assessments to help repay the
$780 million in annual interest payments on the $8 billion of Financing
Corporation bonds issued in the late 1980s as part of the government rescue of
the thrift industry. The FDIC will assess banks at a rate of 1.3 cents per $100
of deposits until December 31, 1999. Thereafter, it will add approximately 2.4
cents per $100 of deposits to each assessment.
The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
SELECTED STATISTICAL INFORMATION
The responses to this section of Item I are included in the Company's
Annual Report to Shareholders under the heading "Selected Statistical
Information" at pages 26 through 32, and are incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company and the Bank are located at 1120 Commerce Drive, Decatur
Georgia. The Company has leased this landmark site in the financial district of
downtown Decatur.
The Company entered into an Agreement to Lease, dated August 20, 1996, with
Daniel B. Pattillo, pursuant to which the Company leases the building from Mr.
Pattillo. The term of the lease expires June
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1, 2002. The Agreement to Lease provides that the Company has an option to
purchase the building under certain conditions.
The building currently contains 5,600 square feet of usable space. Prior
to opening the Bank, the Company renovated the building. The top floor contains
4,113 square feet and was converted into the banking lobby and operations
department. The lower level, which contains 1,487 square feet, is used for
executive offices. Most of the operations and back-room work is outsourced so
less space is needed. Video drive-ups are used instead of physical drive-ups.
The lower parking lot has sufficient room for two drive-up lanes in addition to
employee parking. The property fronts Commerce Drive, which is a main
thoroughfare in Decatur, and backs up to a retail area and residential property.
Access to the drive-ups is available through a side street off of Commerce
Drive. The main parking lot is accessible from Commerce Drive.
Other than normal real estate lending activities of the Bank, the Company
does not invest in real estate, interests in real estate, real estate mortgages,
or securities of or interests in persons primarily engaged in real estate
activities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The response to this Item is partially included in the Company's Annual
Report to Shareholders at page (i) and is incorporated herein by reference.
The Company has not sold any unregistered shares of its Common Stock, no
par value, during fiscal years 1998, 1997, or 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this Item is included in the Company's Annual Report to
Shareholders under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," at pages 2 through 7, and is
incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in the Company's Annual
Report to Shareholders at pages 8 through 25, and are incorporated herein by
reference.
Independent Auditors' Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998 and
1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1998
and 1997
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 27, 1999, under the
following headings, and are incorporated herein by reference.
"Directors and Executive Officers - Election of Directors - Director
Nominees and Continuing Directors," at pages 2 through 3,
"Security Ownership of Certain Beneficial Owners and Management," at pages
5 through 7, and
"Section 16(a) Beneficial Ownership Reporting Compliance," at page 7.
ITEM 10. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 27, 1999, under the
heading, "Compensation of Executive Officers and Directors," at pages 4 through
5, and are incorporated herein by reference.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 27, 1999, under the
headings, "Security Ownership of Certain Beneficial Owners," at pages 5 through
7, and are incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held April 29, 1999, under the
headings, "Certain Relationships and Related Transactions," at page 7, and
"Compensation of Executive Officers and Directors," at pages 4 through 5, and
are incorporated herein by reference.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
3.1 Articles of Incorporation./1/
3.2 Bylaws/1/
4.1 Instruments Defining the Rights of Security Holders. See
Articles of Incorporation at Exhibit 3.1 hereto and Bylaws
at Exhibit 3.2 hereto.
10.1 Agreement to Lease, dated August 20, 1996 between Daniel B.
Pattillo and Decatur First Bank Group, Inc./1/
10.3 Employment Agreement, dated as of June 1, 1996 among Decatur
First Bank (In Organization), Decatur First Bank Group, Inc
and Judy B. Turner./2/
10.4* 1998 Stock Incentive Plan/3/
10.5 Agreement to Modify and Enlarge the Main Office Facility,
dated January 22, 1999 between Decatur First Bank and Malone
Construction Company (Exhibits omitted).
13.1 Decatur First Bank Group, Inc. 1998 Annual Report to
Shareholders. Except with respect to those portions
specifically incorporated by reference into this Report, the
Company's 1998 Annual Report to Shareholders is not deemed
to be filed as part of this Report.
22.1 Subsidiaries of Decatur First Bank Group, Inc./3/
24.1 Power of Attorney (appears on the signature pages to this
Annual Report on 10-KSB).
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1998: None.
______________________
10
<PAGE>
* Compensatory plan or arrangement.
/1/ Incorporated herein by reference to exhibit of same number to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
/2/ Incorporated herein by reference to exhibit 10.4 to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
/3/ Incorporated herein by reference to exhibit of same number in the Company's
Annual Report on Form 10-KSB for the years ended December 31, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 and Chief
Executive Officer
Date: March 15, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Report constitutes and appoints Judy B. Turner and
Merriell Autrey, Jr., his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits hereto, and
other documents in connection herewith with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John L. Adams, Jr. Director March 16, 1999
- ------------------------------------
John L. Adams, Jr.
/s/ Merriell Autrey, Jr. Director March 16, 1999
- ------------------------------------
Merriell Autrey, Jr.
/s/ Mary Bobbie Bailey Director March 16, 1999
- ------------------------------------
Mary Bobbie Bailey
12
<PAGE>
Signature Title Date
--------- ----- ----
/s/ James A. Baskett Director March 16, 1999
- -------------------------------
James A. Baskett
/s/ John Walter Drake Director March 16, 1999
- -------------------------------
John Walter Drake
/s/ William F. Floyd Director March 16, 1999
- -------------------------------
William F. Floyd
/s/ Robert E. Lanier Director March 16, 1999
- -------------------------------
Robert E. Lanier
Director
_______________________________
Carol G. Nickola
/s/ Lynn Pasqualetti Director March 16, 1999
- -------------------------------
Lynn Pasqualetti
/s/Roger K. Quillen Director March 16, 1999
- -------------------------------
Roger K. Quillen
/s/ James T. Smith, III Director March 16, 1999
- -------------------------------
James T. Smith, III
/s/ Kirby A. Thompson Director March 16, 1999
- -------------------------------
Kirby A. Thompson
/s/ Judy B. Turner Director, President and March 16, 1999
- -------------------------------
Judy B. Turner Chief Executive Officer
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
3.1 Articles of Incorporation./1/
3.2 Bylaws./1/
4.1 Instruments Defining the Rights of Security Holders. See Articles of
Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto.
10.1 Agreement to Lease, dated August 20, 1996 between Daniel B. Pattillo
and Decatur First Bank Group, Inc./1/
10.3* Employment Agreement, dated as of June 1, 1996 among Decatur First
Bank (In Organization), Decatur First Bank Group, Inc and Judy B.
Turner./2/
10.4* 1998 Stock Incentive Plan/3/
10.5 Agreement to Modify and Enlarge the Main Office Facility, dated
January 22, 1999 between Decatur First Bank and Malone Construction
Company (Exhibits omitted).
13.1 Decatur First Bank Group, Inc. 1998 Annual Report to Shareholders.
Except with respect to those portions specifically incorporated by
reference into this Report, the Company's 1998 Annual Report to
Shareholders is not deemed to be filed as part of this Report.
22.1 Subsidiaries of Decatur First Bank Group, Inc./3/
24.1 Power of Attorney (appears on the signature pages to this Annual
Report on 10-KSB).
27.1 Financial Data Schedule
______________________
* Compensatory plan or arrangement.
/1/ Incorporated herein by reference to exhibit of the same number to the
Company's Registration Statement on Form SB-2, Registration No. 333-14355,
filed October 18, 1996.
/2/ Incorporated herein by reference to exhibit 10.4 to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
/3/ Incorporated herein by reference to exhibit of the same number in the
Company's Annual Report on 10-KSB for the year ended December 31, 1997.
<PAGE>
EXHIBIT 10.5
AIA DOCUMENT A101-1997
STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONTRACTOR
WHERE THE BASIS OF PAYMENT IS A STIPULATED SUM
AGREEMENT made as of the Twenty-Second day of January in the year Ninety-Nine
(In words, indicate day, month and year)
BETWEEN the Owner: Decatur First Bank
(Name, address and other information) 1120 Commerce Drive
Decatur, Georgia 30030
And the Contractor: Malone Construction Company
(Name, address and other information) 700 Antone Street, NW
Atlanta, Georgia 30318
The Project is: Phase II Executive Office Expansion
(Name and location) 1120 Commerce Drive
Decatur, Georgia 30030
The Architect is: Menefee & Winter, P.C.
(Name, address and other information) King Plow Arts Center
887 Marietta Street, NW
Atlanta, Georgia 30318
The Owner and Contractor agree as follows:
ARTICLE 1 THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, these
form the Contract, and are as fully a part of the Contract as if attached
to this Agreement or repeated herein. The Contract represents the entire
and integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 8.
<PAGE>
ARTICLE 2 THE WORK OF THIS CONTRACT
The Contractor shall fully execute the Work described in the Contract
Documents, except to the extent specifically indicated in the Contract
Documents to be the responsibility of others.
ARTICLE 3 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement of the Work shall be the date of this
Agreement unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement if it differs from the date of this
Agreement or, if applicable, state that the date will be fixed in a notice
to proceed.)
December 2, 1998, or date of Notice to Proceed, whichever is later.
If, prior to the commencement of the Work, the Owner requires time to file
mortgages, mechanic's liens and other security interest, the Owner's time
requirement shall be as follows:
3.2 The Contract Time shall be measured from the date of "Notice to
Proceed".
3.3 The Contractor shall achieve Substantial Completion of the entire Work
not later than 182 days from the date of Notice to Proceed, or as follows:
(Insert number of calendar days. Alternatively, a calendar date may be
used when coordinated with the date of commencement. Unless stated
elsewhere in the Contract Documents, insert any requirements for earlier
Substantial Completion of certain portions of the Work)
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time or for bonus payments for early completion of the Work.)
None
ARTICLE 4 CONTRACT SUM
4.1 The Owner shall pay the Contractor the Contract Sum in current funds
for the Contractor's performance of the Contract. The Contract Sum shall be
Eight Hundred Twenty-Five Thousand Three Hundred Forty-Five and 00/100
----- Dollars ($825,345.00), subject to additions and deductions as
provided in the Contract Documents.
<PAGE>
4.2 The Contract Sum is based upon the following alternates, if any,
which are described in the Contract Documents and are hereby accepted by the
Owner:
(State the numbers or other identification of accepted alternates. If
decisions on other alternates are to be made by the Owner subsequent to the
execution of this Agreement, attached a schedule of such other alternates
showing the amount for each and the date when that amount expires.)
Alternate #3 (Millwork Package) is included in this Contract. Owner reserves
the right to delete Millwork package work from this Contract. Includes Value
Engineering items referenced in Exhibit "B" attached.
ALTERNATE #1 (EXISTING BASEMENT/FOUNDATION WATERPROOFING)
ALTERNATE #2 (EXISTING RETAINING WALL FOUNDATION RETROFIT)
4.3 Unit prices, if any, are as follows:
ARTICLE 5 PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner
shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
5.1.2 The period covered by each Application for Payment shall be one
calendar month ending on the last day of the month, or as follows:
5.1.3 Provided that an Application for Payment is received by the Architect
not later than the first (1st) day of a month, the Owner shall make payment
to the Contractor not later than the fifteenth (15th) day of the same month.
If an Application for Payment is received by the Architect after the
application date fixed above, payment shall be made by the Owner not later
than fifteen (15) days after the Architect receives the Application for
Payment.
5.1.4 Each Application for Payment shall be based on the most recent
schedule of values submitted by the Contractor in accordance with the
Contract Documents. The schedule of values shall allocate the entire
Contract Sum among the various portions of the Work. The schedule of values
shall be prepared in such form and supported by such data to substantiate
its accuracy as the Architect may require. This schedule, unless objected to
by the Architect, shall be used as a basis for reviewing the Contractor's
Applications for Payment.
<PAGE>
5.1.5 Applications for Payment shall indicate the percentage of completion
of each portion of the Work as of the end of the period covered by the
Application for Payment.
5.1.6 Subject to the other provisions of the Contract Documents, the
amount of each progress payment shall be computed as follows:
.1 Take that portion of the Contract Sum properly allocable to
completed Work as determined by multiplying the percentage
completion of each portion of the Work by the share of the
Contract Sum allocated to that portion of the Work in the
schedule of values, less retainage of ten percent (10%).
Pending final determination of cost to the Owner of changes in
the Work, amounts not in dispute shall be included as provided
in Subparagraph 7.3.8 of AIA Document A201-1997;
.2 Add that portion of the Contract Sum properly allocable to
materials and equipment delivered and suitably stored at the
site for subsequent incorporation in the completed construction
(or, if approved in advance by the Owner, suitably stored off
the site at a location agreed upon in writing), less retainage
of ten percent (10%) location;
.3 Subtract the aggregate of previous payments made by the Owner;
and
.4 Subtract amounts, if any, for which the Architect has withheld
or nullified a Certificate for Payment as provided in Paragraph
9.5 of AIA Document A201-1997.
5.1.7 The progress payment amount determined in accordance with
Subparagraph 5.1.6 shall be further modified under the following
circumstances.
.1 Add, upon Substantial Completion of the Work, a sum sufficient
to increase the total payments to the full amount of the
Contract Sum, less such amounts as the Architect shall
determine for incomplete Work, retainage applicable to such
work and unsettled claims; and (Subparagraph 9.8.5 of AIA
Document A201-1997 requires release of applicable retainage
upon Substantial Completion of Work with consent of surety, if
any)
.2 Add, if final completion of Work is thereafter materially
delayed through no fault of the Contractor, any additional
amounts payable in accordance with Subparagraph 9.10.3 of AIA
Document A201-1997.
5.1.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Clauses 5.1.6.1 and 5.1.6.2 above, and this is not explained elsewhere in
the Contract Documents, insert here provisions for such reduction or
limitation.
5.1.9 Except with the Owner's prior approval, the Contractor shall not
make advance payments to suppliers for materials or equipment, which have
not been delivered and stored at the site.
<PAGE>
5.2 FINAL PAYMENT
5.2.1 Final payment, constituting the entire unpaid balance of the
Contract Sum, shall be made by the Owner to the contractor when:
.1 the Contractor has fully performed the contract except for the
Contractor's responsibility to correct Work as provided in
Subparagraph 12.2.2 of AIA Document A201-1997, and to satisfy
other requirements, if any, which extend beyond final payment;
and
.2 a final Certificate for Payment has been issued by the
Architect.
5.2.2 The Owner's final payment to the Contractor shall be made no later
than 30 days after the issuance of the Architect's final Certificate for
Payment, or as follows:
In accordance with Article 9.10 of the General Conditions, as further
modified by the Supplementary Conditions.
ARTICLE 6 TERMINATION OR SUSPENSION
6.1 The Contract may be terminated by the Owner or the Contractor as
provided in Article 14 of AIA Document A201-1997.
6.2 The Work may be suspended by the Owner as provided in Article 14 of
AIA Document A201-1997.
ARTICLE 7 MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of AIA
Document A201-1997 or another Contract Document, the reference refers to
that provision as amended or supplemented by other provisions of the
Contract Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from
the date payment is due at the rate stated below, or in the absence
thereof, at the legal rate prevailing from time to time at the place where
the Project is located.
(Insert rate of interest agreed upon, if any.)
In accordance with Article 13.6 of the General Conditions, as further
modified by the Supplementary Conditions.
(Usury laws and requirements under the Federal Truth in Lending Act,
similar state and local consumer credit laws and other regulations at the
Owner's and Contractor's principal places of business, the location of the
Project and elsewhere may affect the validity of this provision. Legal
advice should be obtained with respect to deletions or modifications, and
also regarding requirements such as written disclosures or waivers.)
7.3 The Owner's representative is:
(Name, address and other information)
Ms. Judy Turner, President
Decatur First Bank
1120 Commerce Drive
Decatur, Georgia 30030
<PAGE>
7.4 The Contractor's representative is:
(Name, address and other information)
W. Sterling Folk
Malone Construction Company
700 Atone Street, NW
Decatur, Georgia 30318
7.5 Neither the Owner's nor the Contractor's representative shall be
changed without ten days' written notice to the other party.
7.6 Other provisions:
ARTICLE 8 ENUMERATION OF CONTRACT DOCUMENTS
8.1 The Contract Documents, except for Modifications issued after
execution of this Agreement, are enumerated as follows:
8.1.1 The Agreement is this executed 1997 edition of the Standard Form of
Agreement Between Owner and Contractor, AIA Document A101-1997.
8.1.2 The General Conditions are the 1997 edition of the General
Conditions of the Contract for Construction, AIA Document A201-1997.
8.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated September 30, 1998, and are as
follows:
Document Title Pages
Supplementary Conditions CB-1 thru CB-24
(reference Exhibit "D" attached)
8.1.4 The Specifications are those contained in the Project Manual dated
as in Subparagraph 8.1.3, and are as follows: Reference Exhibit "C"
attached.
Section Title Pages
<PAGE>
8.1.5 The Drawings are as follows, and are dated ____________________
unless a different date is shown below: Reference Exhibit "A" attached.
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
Number Title Pages
8.1.6 The Addenda, if any, are as follows:
<TABLE>
<CAPTION>
Number Date Pages
<S> <C> <C>
One (1) 10/19/98 2
Two (2) 10/23/98 1
Post Bid
Addendum (1) 12/07/98 1
Post Bid
Addendum (2) 12/09/98 1
Post Bid
Addendum (3) 12/28/98 1
Post Bid
Addendum (4) 01/28/99 1
</TABLE>
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in
this Article 8.
8.1.7 Other documents, if any, forming part of the Contract Documents are
as follows:
(List here any additional documents that are intended to form part of the
Contract Documents AIA Document A201-1997 provides that bidding
requirements such as advertisement or invitation to bid, Instructions to
Bidders, sample forms and the Contractor's bid are not part of the Contract
Documents unless enumerated in this Agreement. They should be listed here
only if intended to be part of the Contract Documents.)
EXHIBIT "B", DECATUR FIRST BANK VALUE ENGINEERING 01-29-1999
This Agreement is entered into as of the day and year first written above
and is executed in at least there original copies, of which one is to be
delivered to the Contractor, one to the Architect for use in the administration
of the Contract, and the remainder to the Owner.
<PAGE>
DECATUR FIRST BANK MALONE CONSTRUCTION COMPANY
/s/ Judy B. Turner /s/ George R. Hemenway
- ---------------------------------- -----------------------------------------
OWNER (Signature) CONTRACTOR (Signature)
Judy B. Tuner, President and CEO George R. Hemenway, Senior Vice President
- ---------------------------------- -----------------------------------------
(Printed name and title) (Printed name and title)
CAUTION: You should sign on original AIA document or a licensed reproduction,
Originals contain the AIA logo printed in red; licensed reproductions are those
produced in accordance with the instructions to this document.
<PAGE>
EXHIBIT 13.1
DECATUR FIRST BANK GROUP, INC.
1998 Annual Report
<PAGE>
Decatur First Bank Group, Inc
Table of Contents
Page
----
To Our Shareholders.................................................... 1
Management's Discussion and Analysis................................... 2
Independent Auditors' Report........................................... 8
Consolidated Financial Statements...................................... 9
Notes to Consolidated Financial Statements............................. 14
Statistical Information................................................ 26
Corporate and Shareholder Information.................................. 33
[LOGO OF DECATUR FIRST BANK GROUP, INC. APPEARS HERE]
Decatur First Bank Group, Inc., a Georgia Corporation (the "Company"), is a
holding company engaged in commercial banking primarily in Dekalb County,
Georgia. The Company currently has one subsidiary, Decatur First Bank (the
"Bank"), which is active in retail and commercial banking.
There is no established public trading market for the Company's Common Stock.
As of March 1, 1999, the Company had 951 shareholders of record.
It is the policy of the Board of Directors to reinvest earnings for such period
of time as is necessary to ensure the success of the operations of the Company.
There are no current plans to initiate payment of cash dividends, and future
dividend policy will depend on the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Board of
Directors of the Company. The Company declared no dividends in 1998 and is not
expected to do so for the foreseeable future. Information on restrictions on
the amount of dividends payable by the Company and the Bank appears in Note 10
to the Company's Audited Financial Statements.
This report serves as our annual disclosure statement as required by the Federal
Deposit Insurance Corporation. This statement has not been reviewed, or
confirmed for accuracy or relevance, by the Federal Deposit Insurance
Corporation.
i
<PAGE>
[LOGO OF DECATUR FIRST BANK, INC. APPEARS HERE]
To our Shareholders:
You make Decatur First! I would like to thank each of you for the confidence you
have shown in the directors and management of Decatur First Bank Group, Inc. If
you bank with us - great! If not, please consider doing it. Our customer service
is the best you will find! Our products and rates are very competitive. If you
live or work anywhere near Decatur, you should bank with us.
During 1998 we added a Small Business Administration (SBA) Department. We were
fortunate to have Steve King join us after 12 years experience in the SBA area
with other financial institutions. We also hired a Commercial Lender and a Sales
Manager.
As you look through our December 31, 1998 balance sheet, you will see some of
the reasons we are so excited about the support we have received from this
community. Our deposits totaled $30 million after only 16 months in business.
This is ahead of our plan. Loans are lower than anticipated, however, we are
taking aggressive steps to enhance our loan programs.
We are very pleased that our net loss was lower than our projections. Most new
banks plan to be cumulatively profitable in the third year of operation. We
expect to make this goal.
The Bank continues to focus on the use of technology as a way to be more
productive and offer greater convenience to our customers. We plan to offer
Internet banking during the second quarter of this year. We are exploring ways
to offer first mortgage loans. We are open to looking at any product or service
our customers need.
This year offers some special challenges. The greatest challenge we all face is
being sure we are ready for the Year 2000. Decatur First Bank is working very
closely with all of our vendors and the banking regulators to prepare for the
new millennium. We will be changing data processing providers as of April 2,
1999, to help insure that Decatur First Bank is Y2K ready. We are confident that
we are taking all the proper precautions and will continue to test our systems
and follow up with our vendors. Decatur First Bank is also completing a 3,600
square foot addition to the building that was begun in December 1998.
Community involvement is the cornerstone of our Bank. We continue to look for
ways we can support the quality of life and economic vitality of Decatur and the
surrounding areas.
Please call on us any time we can help you or your friends with any banking
needs!
Sincerely,
/s/ Judy B. Turner
-------------------------
Judy B. Turner
President and CEO
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Decatur First Bank Group, Inc. (the "Company") opened for business through
its banking subsidiary, Decatur First Bank (the "Bank") on September 2, 1997,
and prior to that date activities of the entity were devoted solely to securing
banking facilities, raising capital and procuring management and other
personnel.
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.
The financial information furnished herein reflects all adjustments which
are, in the opinion of management, necessary to present a fair statement of the
results of operations and financial position for the periods covered herein. All
such adjustments are of a normal recurring nature.
Financial Condition - 1998 vs. 1997
During 1998, average total assets increased $21,195,000 (322%) in comparison
with 1997. Average deposits increased $17,557,000 (1,200%) in 1998 over 1997 and
average loans increased $5,533,000 (1,762%). Total assets at December 31, 1998
were $38,446,000 representing a $20,820,000 (118%) increase from December 31,
1997. Deposits increased $21,336,000 (246%) from December 31, 1997. Net loans
increased $8,133,000 (531%).
Non-performing loans at December 31, 1998, totaled $127,000.
At December 31, 1998 and 1997, the Bank had no outstanding derivative
financial instruments such as swaps, options, futures or forward contracts.
The Bank was most recently examined by its primary regulatory authority as of
June 30, 1998. There were no recommendations by the regulatory authority that,
in management's opinion, will have material effects on the Bank's liquidity,
capital resources or operations.
Results of Operations - 1998 vs. 1997
The Bank's operational results depend to a large degree on net interest
income, which is the difference between the interest income received from its
investments (such as loans, investment securities, federal funds sold, etc.) and
the interest expense which is paid on deposit liabilities.
For the twelve months ended December 31, 1998, the Bank's yield on earning
assets was 6.65% while the cost of funding sources was 3.98%. While the net
interest spread is 2.67%, net interest margin, which considers the effect of
non-interest bearing deposits, was 4.27%, a 1.53% decrease as compared to the
same period in the prior year. Net interest margin is lower than the prior year
due to an increase in the cost of interest bearing deposits and a decrease in
non-interest bearing deposits relative to total deposits. Net interest income in
the aggregate increased for the twelve months ended December 31, 1998 over the
same period for 1997 primarily due to the volume of earning assets and interest
bearing liabilities.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
2
<PAGE>
Results of Operations - 1998 vs. 1997, continued
The provision for loan losses in 1998 was $314,800 compared to $32,000 in
1997. The increase in the provision for loan losses was primarily attributable
to the volume of loan growth during 1998 and specifically identified problem
credits. The provision for loan losses continues to reflect management's
estimate of potential losses inherent in the loan portfolio and the creation of
an allowance for loan losses adequate to absorb such losses. The allowance for
loan losses at December 31, 1998 totaled $198,055, representing 2.01% of total
loans compared to the December 31, 1997 total of $32,000 which also represented
2.05% of total loans. Net charge-offs were $148,745 during 1998. An external
independent loan review function is utilized by the Bank. All loans $100,000 or
more, fifty percent of loans $75,000 to $100,000, twenty-five percent of loans
$50,000 to $75,000 and fifteen percent of loans below $50,000 are reviewed
annually and placed into various loan grading categories which assists in
developing lists of potential problem loans. These loans are regularly monitored
by the loan review process to ensure early identification of repayment problems
so that adequate allowances can be made through the provision for loan losses.
Management believes that these levels of allowance are appropriate based on the
Bank's loan portfolio and the current economic conditions.
Other operating income for the twelve months ended December 31, 1998 totaled
$170,000, representing a $159,000 (1,442%) increase from December 31, 1997. This
increase was associated with an increase in service charges on deposit accounts
of approximately $83,000 related to an increase in the number of accounts and a
$41,000 increase in fees from the sales of SBA loans. Other operating expenses
in 1998 were $1,409,000, a $659,000 (88%) increase compared with 1997 levels,
primarily due to additional personnel and occupancy expense. Additionally, the
Bank adopted early the provisions of Statement of Position 98-5 issued by the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants and reported the charge for unamortized organization costs as
a cumulative effect of a change in accounting principle in the amount of
$78,560.
Results of Operations - 1997 vs. 1996
The 1997 amounts reflect only four full months of operations, while the 1996
amounts reflect no operations of the Bank, but reflect the organizational
efforts associated with the earliest stages of formation. As such, there is
little to no value in drawing a comparative for these periods.
Investments
The investment portfolio consists of debt securities which provide the Bank
with a source of liquidity and a long-term, relatively stable source of income.
Additionally, the investment portfolio provides a balance to interest rate and
credit risk in other categories of the balance sheet while providing a vehicle
for the investment of available funds, furnishing liquidity, and supplying
securities to pledge as required collateral for certain deposits.
Liquidity
The Bank must maintain, on a daily basis, sufficient funds to cover the
withdrawals from depositors' accounts and to supply new borrowers with funds. To
meet these obligations, the Bank keeps cash on hand, maintains account balances
with its correspondent banks, and purchases and sells federal funds and other
short term investments. Asset and liability maturities are monitored in an
attempt to match these to meet liquidity needs. It is the policy of the Bank to
monitor its liquidity to meet regulatory requirements and their local funding
requirements.
The Bank maintains relationships with correspondent banks that can provide
funds to it on short notice, if needed. Presently, the Bank has arrangements
with these correspondent banks for short term unsecured advances up to
$2,750,000, and a $1,000,000 line with the Federal Reserve Bank of Atlanta.
Cash and cash equivalents increased $1,303,000 from December 31, 1997. Cash
inflows from financing activities totaled $21,336,000, attributable to net
deposit increases during 1998.
During 1998, cash used by operating activities totaled $316,000, while
investing activities used $19,717,000, of which security purchases, net of
sales, calls, and paydowns of investment securities totaled $11,151,000.
Additionally, 5$8,447,000 represented new loans to customers, net of repayments.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
3
<PAGE>
Capital Resources
The Company continues to maintain adequate capital ratios. The following
tables present the Company's regulatory capital position at December 31, 1998.
Risk-Based Capital Ratios
Actual as of December 31, 1998
------------------------------
Tier 1 Capital 46.5%
Tier 1 Capital minimum requirement 4.0%
----
Excess 42.5%
====
Total Capital 47.6%
Total Capital minimum requirement 8.0%
----
Excess 39.6%
====
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 24.2%
Minimum leverage requirement 4.0%
----
Excess 20.2%
====
Asset/Liability Management
It is the Company's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers are charged with the responsibility for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits, which include deposits of all
categories made by local individuals, partnerships and corporations. The
objective of the policy is to control interest sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on
earnings.
The asset/liability mix is monitored on a regular basis. A report reflecting
the interest sensitive assets and interest sensitive liabilities is prepared and
presented to the Board of Directors on a monthly basis.
One method to measure a bank's interest rate exposure is through its
repricing gap. The gap is calculated by taking all assets that reprice or mature
within a given time frame and subtracting all liabilities that reprice or mature
within that same time frame. The difference between these two amounts is called
the "gap", the amount of either liabilities or assets that will reprice without
a corresponding asset or liability repricing.
A negative gap (more liabilities repricing than assets) generally indicates
that the Company's net interest income will decrease if interest rates rise and
will increase if interest rates fall. A positive gap generally indicates that
the Company's net interest income will decrease if rates fall and will increase
if rates rise.
The following table summarizes the amounts of interest-earning asets and
interest-bearing liabilities outstanding at December 31, 1998 that are expected
to mature, prepay or reprice in each of the future time periods shown. Except as
stated below, the amount of assets or liabilities that mature or reprice during
a particular period was determined in accordance with the contractual terms of
the asset or liability. Adjustable rate loans are included in the period in
which interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed rate loans and mortgage-backed securities are
included in the periods in which they are anticipated to be repaid based on
scheduled maturities. The Bank's savings accounts and interest-bearing demand
accounts (NOW and money market deposit accounts), which are generally subject to
immediate withdrawl, are included in the "Three Months or Less" category,
although historical experience has proven these deposits to be more stable over
the course of a year.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
4
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1998
<S> <C> <C> <C> <C> <C>
Maturing or Repricing in
------------------------
(dollars in thousands)
Three Four
Months or Months to 1 to 5 Over 5
Less 12 Months Years Years Total
--------- --------- ------ ------ ------
Interest-earning assets:
Federal funds sold $ 5,290 - - - 5,290
Investment securities 250 4,784 12,526 2,225 19,785
Loans 5,002 549 3,599 712 9,862
-------- ------- ------ ----- ------
Total interest-bearing assets $ 10,542 5,333 16,125 2,937 34,937
======== ======= ====== ===== ======
Interest-bearing liabilities:
Deposits:
Savings and demand $ 19,694 - - - 19,694
Time deposits 2,854 5,632 1,821 10,307
-------- ------- ------ ----- ------
Total interest-bearing liabilities $ 22,548 5,632 1,821 - 30,001
======== ======= ====== ===== ======
Interest sensitive difference
per period $(12,006) (299) 14,304 2,937 4,936
======== ======= ====== ===== ======
Cumulative interest sensitivity
difference $(12,006) (12,305) 1,999 4,936
======== ======= ====== =====
Cumulative difference to total
assets (34.36)% (35.22)% 5.72% 14.13%
======== ======= ====== =====
</TABLE>
At December 31, 1998, the difference between the Company's liabilities and
assets repricing or maturing within one year was $12,000. Due to an excess of
liabilities repricing or maturing within one year, a rise in interest rates
would cause the Company's net interest income to decline.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods of repricing, they may reflect changes in market
interest rates differently. Additionally, certain assets, such as adjustable-
rate mortgages, have features that restrict changes in interest rates, both on a
short-term basis and over the life of the asset. Other factors which may affect
the assumptions made in the table include changes in interest rates, pre-payment
rates, early withdrawal levels and the ability of borrowers to service their
debt.
Inflation
Inflation impacts the growth in total assets in the banking industry and
causes a need to increase equity capital at higher than normal rates to meet
capital adequacy requirements. The Company copes with the effects of inflation
through the management of its interest rate sensitivity gap position, by
periodically reviewing and adjusting its pricing of services to consider current
costs, and through managing its level of net income relative to its dividend
payout policy.
Year 2000 Issue
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 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 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.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
5
<PAGE>
The Company's State of Readiness
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 second quarter of 1999.
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 the purpose of determining Year 2000 compliance and were
deemed 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 is on going and is a
required procedure in the underwriting of any new commercial loan.
Additionally, the Company encourages its larger and commercial borrowers
to assess the potential impact of Year 2000 and their ability to remain
current on loan repayments.
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 second quarter 1999.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
6
<PAGE>
Year 2000, continued
Financial Implications
The Company believes that, since the majority of its equipment is
relatively new, Year 2000 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.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
7
<PAGE>
[LETTERHEAD OF PORTER KEADLE MOORE, LLP APPEARS HERE]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Decatur First Bank Group, Inc.
We have audited the accompanying consolidated balance sheets of Decatur First
Bank Group, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related statements of operations, comprehensive income, changes in
shareholders' equity and cash flows for the years ended December 31, 1998 and
1997 and the period from August 2, 1996 (inception) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Decatur First Bank
Group, Inc. and subsidiary as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for the years ended December 31, 1998 and
1997 and the period from August 2, 1996 (inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for organizational costs in 1998.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
January 28, 1999
8
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets
------
1998 1997
----------- ---------
<S> <C> <C>
Cash and due from banks $ 2,339,634 1,966,791
Federal funds sold 5,290,000
4,360,000
Cash and cash equivalents 7,629,634 6,326,791
Investment securities available for sale 18,884,149 5,503,583
Investment securities held to maturity
(market value of $904,835 and $3,089,875) 900,752 3,086,821
Loans, net 9,663,772 1,531,200
Premises and equipment, net 965,280 943,817
Accrued interest receivable and other assets 402,513 233,829
----------- ----------
$38,446,100 17,626,041
=========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 6,725,501 1,557,191
Money market and NOW accounts 12,294,834 4,486,376
Savings 673,702 203,049
Time 7,336,516 1,709,237
Time over $100,000 2,971,198 709,699
----------- ----------
Total deposits 30,001,751 8,665,552
Accrued interest payable and other liabilities 88,052 134,097
----------- ----------
Total liabilities 30,089,803 8,799,649
----------- ----------
Commitments
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, par value $5; 10,000,000 shares authorized;
941,924 and 941,544 issued and outstanding, respectively 4,709,620 4,707,720
Additional paid-in capital 4,669,936 4,668,036
Accumulated deficit (1,115,349) (545,866)
Accumulated other comprehensive income 92,090 (3,498)
----------- ----------
Total shareholders' equity 8,356,297 8,826,392
----------- ----------
$38,446,100 17,626,041
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997
and the Period from August 2, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 561,449 42,315 -
Interest on taxable investment securities 847,429 218,194 -
Interest on federal funds sold 247,865 138,020 -
Total interest income 1,656,743 398,529 -
----------- --------- -------
Interest expense:
Interest on money market and NOW accounts 239,323 21,482 -
Interest on savings and time deposits 354,590 23,682 -
Other - 21,886 3,042
----------- --------- -------
Total interest expense 593,913 67,050 3,042
----------- --------- -------
Net interest income (expense) 1,062,830 331,479 (3,042)
Provision for loan losses 314,800 32,000 -
----------- --------- -------
Net interest income (expense) after provision for loan losses 748,030 299,479 (3,042)
----------- --------- -------
Other income:
Service charges on deposit accounts 88,876 5,517 -
Gain on sale of loans 40,770 - -
Other income 40,165 5,493 -
----------- --------- -------
Total other income 169,811 11,010 -
----------- --------- -------
Other expenses:
Salaries and employee benefits 734,796 346,273 64,935
Occupancy and equipment 178,536 103,549 19,065
Other operating 495,432 300,045 19,446
----------- --------- -------
Total other expenses 1,408,764 749,867 103,446
----------- --------- -------
Net loss before cumulative effect of accounting change
for organizational costs 490,923 439,378 106,488
Cumulative effect of accounting change for organizational costs 78,560 - -
----------- --------- -------
Net loss $ 569,483 439,378 106,488
=========== ========= =======
Loss per common share:
Loss before cumulative effect of accounting change
for organizational costs $ 0.52 0.47 0.11
Cumulative effect of accounting change for organizational costs 0.08 - -
----------- --------- -------
Net loss per share $ 0.60 0.47 0.11
=========== ========= =======
Weighted average outstanding shares 941,624 941,544 941,544
=========== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1998 and 1997
and the Period from August 2, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net loss $569,483 439,378 106,488
Other comprehensive income, consisting of
unrealized (gains) losses on securities available for sale:
Holding (gains) losses arising during period (95,588) 3,498 -
-------- ------- -------
Comprehensive loss $473,895 442,876 106,488
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
and the Period from August 2, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Accumulated Comprehensive
Stock Capital Deficit Income Total
---------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Proceeds from issuance of
organization shares $ 5 5 - - 10
Net loss - - (106,488) - (106,488)
---------- --------- ---------- ------ ---------
Balance, December 31, 1996 5 5 (106,488) - (106,478)
Proceeds from stock offering, net
of offering costs of $39,684 4,707,720 4,668,036 - 9,375,756
Redemption of organization shares (5) (5) - - (10)
Change in unrealized gain (loss) on
securities available for sale - - - (3,498) (3,498)
Net loss - - (439,378) - (439,378)
---------- --------- ---------- ------ ---------
Balance, December 31, 1997 4,707,720 4,668,036 (545,866) (3,498) 8,826,392
Issuance of common stock 1,900 1,900 - 3,800
Change in unrealized gain (loss) on
securities available for sale 95,588 95,588
Net loss - - (569,483) - (569,483)
---------- --------- ---------- ------ ---------
Balance, December 31, 1998 $4,709,620 4,669,936 (1,115,349) 92,090 8,356,297
========== ========= ========== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
and for the Period from August 2, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(569,483) (439,378) (106,488)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, amortization and accretion 131,191 27,676 -
Provision for loan losses 314,800 32,000 -
Provision for stock awards 3,800
Cumulative effect of accounting change 78,560
Loss on disposal of premises and equipment 18,262
Change in:
Accrued interest receivable (204,646) (150,769) -
Other assets (42,598) (51,468) (33,200)
Accrued interest payable 52,051 16,319 1,232
Other liabilities (98,096) 32,664 83,902
---------- ----------- --------
Net cash used by operating activities (316,159) (430,040) (54,554)
---------- ----------- --------
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities
held to maturity 2,185,762 501,734 -
Proceeds from calls and maturities of investment securities
available for sale 2,835,409 2,040,605 -
Purchases of investment securities held to maturity - (3,589,858) -
Purchases of investment securities available for sale (16,172,639) (7,548,869) -
Net change in loans (8,447,372) (1,563,200) -
Purchase of premises and equipment (118,357) (948,814) (20,193)
Organization and offering costs - - (101,328)
---------- ----------- --------
Net cash used by investing activities (19,717,197) (11,108,402) (121,521)
---------- ----------- --------
Cash flows from financing activities:
Net change in deposits 21,336,199 8,665,552 -
Net change in line of credit - (200,000) 200,000
Proceeds from the sale of common stock, net of offering costs
of $39,684 - 9,375,756 -
Sale of (redemption of) organization shares - (10) 10
----------- ---------- --------
Net cash provided by financing activities 21,336,199 17,841,298 200,010
----------- ----------- --------
Net increase in cash and cash equivalents 1,302,843 6,302,856 23,935
Cash and cash equivalents at beginning of year 6,326,791 23,935 -
------------ ---------- --------
Cash and cash equivalents at end of year $ 7,629,634 6,326,791 23,935
============ =========== ========
Supplemental schedule of noncash investing and
financing activities:
Change in net unrealized loss on investment securities
available for sale $ 95,588 (3,498) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 541,862 50,731 1,810
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
----------------------------------------------
The consolidated financial statements include the accounts of Decatur
First Bank Group, Inc. (the "Company") and its wholly owned subsidiary,
Decatur First Bank (the "Bank"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
The Bank commenced business on September 2, 1997 upon receipt of its
banking charter from the Georgia Department of Banking and Finance (the
"DBF"). The Bank is primarily regulated by the DBF and the Federal
Deposit Insurance Corporation and undergoes periodic examinations by
these regulatory agencies. The Company is regulated by the Federal
Reserve Bank of Atlanta and also is subject to periodic examinations.
The Bank provides a full range of commercial and consumer banking
services throughout the Decatur and Dekalb County area in Georgia.
Operations through December 31, 1996 related primarily to expenditures
by the organizers for incorporating and organizing the Company.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles (GAAP) and with general practices in the banking
industry. In preparing the 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 these 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
determination 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 the realization of deferred tax
assets which are based on future taxable income.
Investment Securities
---------------------
The Company classifies its securities in one of three categories:
trading, available for sale, or held to maturity. Trading securities are
bought and held principally for the purpose of selling them in the near
term. Held to maturity securities are those securities for which the
Company has the ability and intent to hold until maturity. All
securities not included in trading or held to maturity are classified as
available for sale. At December 31, 1998 and 1997, there were no trading
securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale
are excluded from earnings and are reported as a separate component of
shareholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related securities as adjustments to the yield. Realized gains and
losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at principal amount outstanding, net of the allowance
for loan losses. Unearned interest on discounted loans is recognized as
income over the term of the loans using a method which approximates a
level yield. Interest on other loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
14
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses, continued
-----------------------------------
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's
observable market price, or at the fair value of the collateral of the
loan if the loan is collateral dependent. Accrual of interest is
discontinued on a loan when management believes, after considering
economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is
doubtful.
Servicing assets and liabilities are assessed for impairment or
increased obligation based upon their fair values. When the Bank sells
the portion of a loan guaranteed by the U.S. Small Business
Administration ("SBA") the investment in the entire loan is allocated
between the guaranteed and unguaranteed portions of the loan, as well as
the servicing assets and interest-only strip receivable, based upon
their respective fair market values at the date of sale. Gains on sales
of loans, calculated by taking the net proceeds from the sale less the
allocated sold portion of the loan, are presented in the statement of
operations net of brokerage expenses.
Servicing assets and interest-only strips receivable recognized from the
sales of the portion of loans guaranteed by SBA with the retention of
loan servicing are carried at the present value of estimated future net
servicing income over the estimated lives of the related SBA loans, less
amounts amortized. Amortization of these assets is computed using a
level yield method over the estimated remaining lives of the related SBA
loans taking into consideration assumed prepayment patterns. Servicing
assets and interest-only strips receivable are measured for impairment
periodically via stratification of the assets by predominant risk
characteristic such as loan term and interest rate. No valuation
allowances were required based upon the evaluation for impairment at
December 31, 1998.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
for loan losses when management believes that the collectibility of the
principal is unlikely. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality and review of
specific problem loans. In determining the adequacy of the allowance for
loan losses management uses a loan grading system that rates loans in
seven different categories. Grades four through seven are assigned
allocations of loss based on standard regulatory loss percentages used
in regulatory examinations, while loans graded one through three are
allocated estimated loss ranges based on targeted peer group
percentages. The combination of these results are compared monthly to
the recorded allowance for loan losses and material differences are
adjusted by increasing or decreasing the provision for loan losses.
Management uses an external loan review program to challenge and
corroborate the internal loan grading system and provide additional
analysis in determining the adequacy of the allowance and the future
provisions for estimated loan losses.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on judgments
different than those of management.
15
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Costs incurred for maintenance and repairs are expensed currently.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Leasehold improvements 10 - 25 years
Furniture and equipment 5 - 10 years
Organizational Costs - Accounting Change
----------------------------------------
The Company incurred certain costs in connection with its organization
which were capitalized. These costs were being amortized over five (5)
years. During 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5, which changed the accounting requirements for
organizational costs. SOP 98-5 requires these types of costs to be
expensed as incurred rather than capitalized and amortized. The Company
elected to implement SOP 98-5 as of the beginning of 1998 and
correspondingly reported the charge as a cumulative effect of an
accounting change in the statement of operations.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the assets and
liabilities results in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such asset is required. A valuation allowance is provided for the
portion of the deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be realized. In
assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected
future taxable income, and tax planning strategies.
Statement of Comprehensive Income
---------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" was issued in 1997 and became applicable to the
Company in 1998. SFAS No. 130 established standards for the reporting
and presentation of comprehensive income and its components in a full
set of general-purpose financial statements. The Company has elected to
present comprehensive income in a separate statement of comprehensive
income. Accumulated other comprehensive income is solely related to the
effect of unrealized gains on securities available for sale.
Net Loss Per Share
------------------
Earnings per share are based on the weighted average number of common
shares outstanding during the period while the effects of potential
common shares outstanding, such as warrants or options, are included in
diluted earnings per share.
For 1998, the potential effect of outstanding options would be anti-
dilutive, and therefore is not presented.
For 1997 and 1996, net loss per share is calculated by dividing net loss
by the number of common shares sold in the initial public offering,
which are considered outstanding the entire periods.
16
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards
for hedging derivatives and for derivative instruments including
derivative instruments embedded in other contracts. It requires the fair
value recognition of derivatives as assets or liabilities in the
financial statements. The accounting for the changes in the fair value
of a derivative depends on the intended use of the derivative instrument
at inception. Instruments used as fair value hedges account for the
change in fair value in the earnings of the period simultaneous with
accounting for the fair value change of the item being hedged. Cash flow
hedges account for the change in fair value of the effective portion in
comprehensive income rather than earnings, and foreign currency hedges
are accounted for in comprehensive income as part of the translation
adjustment. Derivative instruments that are not intended as a hedge
account for the change in fair value in the earnings of the period of
the change. SFAS No. 133 is effective for all fiscal quarters beginning
after June 15, 1999, but initial application of the Statement must be
made as of the beginning of the quarter. At the date of initial
application, an entity may transfer any held to maturity security into
the available for sale or trading categories without calling into
question the entity's intent to hold other securities to maturity in
the future. The Company believes the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations
or liquidity.
(2) Investment Securities
Investment securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity: December 31, 1998
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
U.S. Government agencies $900,752 4,083 - 904,835
======== ===== = =======
December 31, 1997
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ------------
U.S. Treasuries and
U.S. Government agencies $ 3,086,821 4,195 1,141 3,089,875
=========== ===== ===== =========
Securities Available for Sale: December 31, 1998
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ------------
U.S. Treasuries $ 960,071 3,641 - 963,712
U.S. Government agencies 16,861,188 115,926 27,989 16,949,125
Mortgage-backed securities 970,710 602 - 971,312
----------- ------- ------ ----------
$18,791,969 120,169 27,989 18,884,149
=========== ======= ====== ==========
</TABLE>
17
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies $5,507,081 4,242 7,740 5,503,583
========== ===== ===== =========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
---------------------------------- -------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries and
U.S. government agencies:
Within 1 year $900,752 904,835 4,115,111 4,133,219
1 to 5 years - - 12,451,748 12,525,540
5 to 10 years - - 1,254,400 1,254,078
Mortgage-backed securities - - 970,710 971,312
-------- ------- --------- ----------
$900,752 904,835 18,791,969 18,884,149
</TABLE>
There were no sales of securities available for sale during 1998, 1997
or 1996.
Securities with a carrying value of approximately $610,000 as of
December 31, 1998 were pledged to secure public deposits as required by
law.
(3) Loans
Major classifications of loans at December 31, 1998 and 1997 are
summarized as follows:
1998 1997
---- ----
Commercial, financial and agricultural $4,512,298 927,966
Real estate - mortgage 4,183,017 167,334
Consumer 1,166,512 467,900
---------- ---------
9,861,827 1,563,200
Less: Allowance for loan losses 198,055 32,000
---------- ---------
$9,663,772 1,531,200
========== =========
The Bank grants loans and extensions of credit to individuals and a
variety of businesses and corporations located in its general trade area
of the city of Decatur, Dekalb County, Georgia and adjoining counties.
Although the Bank has a diversified loan portfolio, a substantial
portion of the loan portfolio is collateralized by improved and
unimproved real estate and is dependent upon the real estate market.
18
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(3) Loans, continued
An analysis of the activity in the allowance for loan losses for the
year ended December 31, 1998 is presented below:
Balance at beginning of year $ 32,000
Provision charged to operations 314,800
Loans charged off (148,745)
Recoveries -
---------
Balance at end of year $ 198,055
=========
The Bank provided $32,000 for the year ended December 31, 1997 to the
allowance for loan losses for potential problem loans.
(4) Premises and Equipment
Major classifications of premises and equipment are summarized as
follows:
1998 1997
---------- -------
Land $ 8,488 8,488
Leasehold improvements 670,413 659,999
Furniture and equipment 302,274 300,520
Construction in progress 78,796 -
---------- -------
1,059,971 969,007
Less: Accumulated depreciation 94,691 25,190
---------- -------
$ 965,280 943,817
========== =======
Depreciation expense amounted to $78,632 and $25,190 in 1998 and 1997,
respectively.
The Company has entered into an agreement with a company for certain
expenditures for modifications and enlargement to the current main
office facility. The costs of these expenditures, not including the
purchase price agreed to in the lease agreement, are estimated to
approximate $1,000,000 including furniture and equipment, and are
expected to be completed by May 1, 1999.
(5) Deposits
Maturities of time deposits at December 31, 1998 are as follows:
Maturing in:
1999 $ 8,486,309
2000 1,410,229
2001 240,768
2002 54,028
2003 116,380
-----------
$10,307,714
===========
19
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(6) Income Taxes
At December 31, 1998, the Company had federal and state net operating
loss carryforwards for tax purposes of approximately $633,000 and
$1,208,000, respectively, which will expire beginning in 2019 if not
previously utilized. No income tax expense or benefit was recorded for
the periods ended December 31, 1998, 1997 or 1996 due to these loss
carryforwards.
The following summarizes the components of deferred taxes at December
31, 1998 and 1997.
1998 1997
---- ----
Deferred income tax assets:
Allowance for loan losses $ 65,001 10,729
Pre-opening expenses 120,089 124,009
Premises and equipment - 1,015
Operating loss carryforwards 263,938 76,427
Contributions 4,640 807
Discount on SBA loans, net 729 -
--------- --------
Total gross deferred income tax assets 454,397 212,987
Less valuation allowance (442,079) (212,987)
--------- --------
Net deferred tax asset 12,318 -
Deferred income tax liabilities consisting
of premises and equipment (12,318) -
--------- --------
Net deferred tax assets $ - -
========= ========
The future tax consequences of the differences between the financial
reporting and tax basis of the Company's assets and liabilities
resulted in a net deferred tax asset. A valuation allowance was
established for the net deferred tax asset, as the realization of these
deferred tax assets is dependent on future taxable income.
(7) Commitments
On September 9, 1996, the Company entered into an operating l ease
agreement for space to serve as the main office of the Company and the
Bank. The lease term also includes an option to purchase the property at
a price of $500,000. Future minimum lease payments required for all
operating leases having a remaining term in excess of one year at
December 31, 1998 are as follows:
1999 54,000
2000 54,000
2001 54,000
2002 22,500
--------
$184,500
========
The total rental expense was $54,000 and $55,805 in 1998 and 1997,
respectively.
The Company entered into an employment agreement with its President and
Chief Executive Officer, providing for an initial term of five years
commencing June 1, 1996, and an automatic annual extension subsequent to
that five year period. The agreement provides for a base salary, an
incentive bonus based on five percent of the Company's pre-tax
earnings, and stock options which vest equally over five years at $10
per share equal to five percent of the number of shares sold in the
initial public offering, or 47,000 shares (which were granted in 1998).
Additionally, the Company is to maintain a $1,500,000 key man life
insurance policy, with $1,000,000 payable to the Company and $500,000
payable to the President's family. The agreement further provides for
other perquisites, and subjects the President to certain non-compete
restrictions.
20
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(7) Commitments, continued
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheet. The contractual amounts of
those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. In most cases, the Bank requires
collateral to support financial instruments with credit risk. At
December 31, 1998 and 1997, the Bank has commitments to extend credit of
$3,534,000 and $131,000, respectively. There are no standby letters of
credit for either year.
(8) Employee Benefit Programs
During 1997, the Company adopted a 401(k) plan for the benefit of its
employees subject to certain minimum age and service requirements. The
Company does not intend to make contributions to the plan until
cumulative profitability has been attained.
Additionally, during 1998, the Board awarded 380 shares to certain
employees who have been with the Bank since its opening. The fair value
of these shares of $3,800 was charged to operations upon issuance of the
shares.
The Company adopted a Stock Incentive Plan in 1998 covering up to
143,000 shares of the Company's common stock. The Plan is administered
by a committee of the Board of Directors and provides for the granting
of options to purchase shares of common stock to officers, directors and
key employees of the Company and Bank. The exercise price of each option
granted under the Plan will not be less than the fair market value of
the shares of common stock subject to the option on the date of grant as
determined by the Board of Directors. Options are exercisable in whole
or in part upon such terms as may be determined by the committee, and
are exercisable no later than ten years after the date of grant.
On March 17, 1998, the Board granted options to purchase 80,031 shares
of common stock to certain officers. The shares were granted at an
exercise price of $10, vest evenly over a 5 year period and are
exercisable no later than ten years from the date of grant.
A summary status of the Company's stock plan as of December 31, 1998,
and changes during the year, are presented below:
1998
-----------------
Weighted
Average
Exercise
Shares Price
------ --------
Outstanding, beginning of year - -
Granted during the year 80,031 $10.00
------
Outstanding, end of year 80,031 $10.00
======
Options exercisable at year end - $10.00
======
Weighted average fair value of options
granted during the year $ 3.62
Weighted average remaining contractual
lives (years) 9.17
21
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(8) Employee Benefit Programs, continued
The Company is encouraged, but not required, to compute the fair value
of options at the date of grant and to recognize such costs as
compensation expense over the vesting period or immediately if only
subject to a service requirement and the award is expected to vest. The
Company has chosen not to adopt the cost recognition principles, and no
compensation expense has been recognized in 1998 related to the stock
option plan. Had compensation cost been determined based upon the fair
value of the options at the grant dates, the Company's net loss and net
loss per share would have been reduced to the proforma amounts indicated
below:
1998
----
Net loss As reported $569,483
Proforma $859,195
Loss per share As reported $ 0.60
Proforma $ 0.91
The fair value of each option is estimated on the date of grant using
the Minimum Value pricing model with the following weighted average
assumptions used for grants in 1998: no dividend yield, a risk free
interest rate of 4.7%, and an expected life of 10 years. For disclosure
purposes, the Company immediately recognized the expense assuming that
all awards will vest.
(9) Related Party Transactions
The Bank conducts transactions with directors and officers, including
companies in which they have a beneficial interest, in the normal course
of business. It is the Bank's policy to comply with federal regulations
which require that loan and deposit transactions with directors and
executive officers be made on substantially the same terms as those
prevailing at the time made for comparable loans and deposits to other
persons. For the year ended December 31, 1998, loans made to related
parties totaled $175,972, repayments totaled $24,490, resulting in an
ending balance of $151,482. As of December 31, 1998 and 1997, there were
$1,882,561 and $1,118,593, respectively, of related party deposits.
(10) Regulatory Matters
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under certain adequacy guidelines and the regulatory
framework for prompt corrective action, specific capital guidelines that
involve quantitative measures of the assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices must be met. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios (set forth in the table below) of Total and Tier 1 Capital
(as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 Capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1998, that the Company and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification
that management believes have changed the Banks category.
22
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(10) Regulatory Matters, continued
The actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated $8,454,262 47.65% 1,420,000 8.0% N/A N/A
Bank $7,274,460 41.58% 1,400,000 8.0% 1,750,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $8,256,207 46.53% 710,000 4.0% N/A N/A
Bank $7,076,405 40.44% 700,000 4.0% 1,050,000 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $8,256,207 24.24% 1,362,000 4.0% N/A N/A
Bank $7,076,405 21.50% 1,316,000 4.0% 1,646,000 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $8,770,673 158.14% 444,000 8.0% N/A N/A
Bank $7,659,969 143.86% 426,000 8.0% 532,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $8,738,673 157.56% 222,000 4.0% N/A N/A
Bank $7,627,969 143.26% 213,000 4.0% 319,000 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $8,738,673 60.66% 576,000 4.0% N/A N/A
Bank $7,627,969 57.36% 532,000 4.0% 665,000 5.0%
</TABLE>
Dividends paid by the Bank are the primary source of funds available to
the Company. Banking regulations limit the amount of dividends that may
be paid without prior approval of the regulatory authorities. These
restrictions are based on the level of regulatory classified assets, the
prior years' net earnings, and the ratio of equity capital to total
assets. The Bank is currently not allowed to pay dividends to the
Company until it becomes cumulatively profitable.
(11) Stockholders' Equity
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of the
Company, up to a maximum of 2,000,000 shares. Each resolution shall
include the number of shares issued, preferences, special rights and
limitations as determined by the Board.
23
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(12) Decatur First Bank Group, Inc. (Parent Company Only) Financial
Information
Balance Sheets
December 31, 1998 and 1997
Assets
------
1998 1997
---------- ---------
Cash and interest bearing deposits $ 142,681 615,552
Investment in Decatur First Bank 7,178,835 7,672,300
Investment securities available for sale 1,016,090 498,590
Other assets 18,691 39,950
---------- ---------
$8,356,297 8,826,392
========== =========
Liabilities and Shareholders' Equity
------------------------------------
Shareholders' equity $8,356,297 8,826,392
========== =========
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income:
Interest income $ 70,281 116,883 -
--------- --------- ---------
Expenses:
Interest - 21,887 3,042
Salaries and employee benefits 4,091 102,120 64,935
Occupancy and equipment - 37,143 19,065
Other operating 13,549 70,849 19,446
--------- --------- ---------
Total expenses 17,640 231,999 106,488
--------- --------- ---------
Earnings (loss) before equity in
undistributed loss of subsidiary and
cumulative effect of accounting change 52,641 (115,116) (106,488)
Equity in undistributed loss of subsidiary (591,333) (324,262) -
Cumulative effect of accounting change for
organizational costs (30,791) - -
--------- --------- ---------
Net loss $(569,483) (439,378) (106,488)
========= ========= =========
</TABLE>
24
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Consolidated Financial Statements, continued
(12) Decatur First Bank Group, Inc. (Parent Company Only) Financial
Information, continued
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (569,483) (439,378) (106,488)
Adjustments to reconcile net loss to net
cash used by operating activities:
Equity in undistributed loss of subsidiary 591,333 324,262 -
Amortization 927 3,062 -
Provision for stock awards 3,800 -
Cumulative effect of accounting change 30,791 -
Change in other (9,532) 26,530 51,934
----------- ---------- --------
Net cash provided (used) by operating activities 47,836 (85,524) (54,554)
----------- ---------- --------
Cash flows from investing activities:
Capital infusion into subsidiary - (8,000,000) -
Proceeds from maturities and calls of securities
available for sale 994,329 - -
Purchase of securities available for sale (1,515,036) (498,605) -
Purchase of premises and equipment - - (20,193)
Organization and offering costs - - (101,328)
----------- ---------- --------
Net cash used by investing activities (520,707) (8,498,605) (121,521)
----------- ---------- --------
Cash flows from financing activities:
Change in line of credit - (200,000) 200,000
Sale of (redemption of) organization shares - (10) 10
Proceeds from sale of common stock,
net of offering costs of $39,684 9,375,756 -
----------- ---------- --------
Net cash provided by financing activities 9,175,746 200,010
----------- ---------- --------
Net change in cash (472,871) 591,617 23,935
Cash at beginning of year 615,552 23,935 -
----------- ---------- --------
Cash at end of year $ 142,681 615,552 23,935
=========== ========== ========
Supplemental schedule of noncash financing and
investing activities:
Change in net unrealized gain (loss) on securities
available for sale of subsidiary $ 97,868 (3,438) -
Change in unrealized loss on securities
available for sale $ (2,280) (60) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ - 23,119 1,810
</TABLE>
25
<PAGE>
SELECTED STATISTICAL INFORMATION
The following section presents statistical information for Decatur First
Bank Group, Inc. which supplements the financial data
discussed elsewhere herein.
Index to Selected Statistical Information
Table 1 Average Balances and Interest Rates
Table 2 Volume/Rate Analysis
Table 3 Investment Portfolio
Table 4 Loan Portfolio
Table 5 Allowance for Loan Losses
Table 6 Deposits
Table 7 Selected Ratios
Average balances contained in the following selected statistical
information generally represent average daily balances for all
periods.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
26
<PAGE>
Table 1
Average Balances and Interest Rates
The table below shows the average balance outstanding for each category of
interest earning assets and interest-bearing liabilities for 1998 and 1997, and
the average rate of interest earned or paid thereon.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
(Amounts presented in thousands)
1998 1997
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans (including loan fees) $ 5,847 561 9.59% 314 42 13.38%
Investment securities 14,600 847 5.80% 3,293 218 6.62%
Federal funds sold 4,451 248 5.57% 2,095 138 6.59%
------- ----- ------ ---
Total interest earning assets 24,898 1,656 6.65% 5,702 398 6.99%
Other non-interest earnings assets 2,878 879
------- ------
Total assets 27,776 6,581
======= ======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings 8,727 251 2.88% 810 22 2.72%
Time 6,210 343 5.52% 407 23 5.65%
Other borrowings - - - 223 22 9.87%
------ --- -----
Total interest-bearing liabilities 14,937 594 3.98% 1,440 67 4.65%
----- ---
Other non-interest bearing liabilities 4,219 462
Stockholders' equity 8,620 4,679
------- ------
Total liabilities and stockholders' equity 27,776 6,581
======= ======
Excess of interest-earning assets over interest -
bearing liabilities $ 9,961 4,262
======= ======
Ratio of interest-earning assets to interest -
bearing liabilities 166.69% 395.97%
Net interest income 1,062 331
===== ===
Net interest spread 2.67% 2.34%
Net interest yield on interest earning assets 4.27% 5.80%
</TABLE>
Non-accrual loans and the interest income which was recorded on these loans, if
any, are included in the yield calculation for loans in all periods reported.
27
<PAGE>
Table 2
Volume/Rate Analysis
1998 Compared to 1997
increase (decrease) due to changes in
Volume Rate Net
------ ---- ---
Change
- ------
Interest income on:
Loans (including loan fees) $ 531 (12) 519
Investment securities 656 (27) 629
Federal funds sold 131 (21) 110
------ --- -----
1,318 (60) 1,258
------ --- -----
Interest expense on:
Interest-bearing demand and savings 228 1 229
Time 320 - 320
Other borrowings - (22) (22)
--- -----
548 (21) 527
------ --- -----
$ 770 (39) 731
====== === =====
Volume/Rate Analysis between 1997 and 1996 is not presented as 1997 operations
were only for four months versus 1996's efforts which were focused on the
formation of the Company.
Variances resulting from a combination of changes in rate and volume are
allocated in proportion to the absolute dollar amounts of the change in each
category.
Table 3
Investment Portfolio
The following table presents the investments by category at December 31, 1998
and 1997:
(Amounts are presented in thousands)
1998 1997
Available for Sale Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
United States treasury and
agencies $17,821 17,913 5,507 5,504
Mortgage-backed 971 971 - -
------- ------ ----- -----
18,792 18,884 5,507 5,504
------- ------ ----- -----
Held to Maturity
United States treasury and agencies 901 905 3,087 3,090
------- ------ ----- -----
Total $19,693 19,789 8,594 8,594
======= ====== ===== =====
28
<PAGE>
Table 3
Investment Portfolio, continued
The following table presents the maturities of all investment securities at
carrying value and the weighted average yields for each range of maturities
presented. (Amounts are presented in thousands)
Maturities at United States Mortgage-Backed Weighted
December 31, 1998 Treasury and Agencies Securities Average Yields
- ----------------- --------------------- --------------- --------------
Within one year $ 5,034 - 5.75%
After 1 through 5 years 12,525 - 5.60%
After 5 through 10 years 1,255 971 5.70%
After 10 years - - -
------- ---
Totals $18,814 971
======= ===
Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities.
Table 4
Loan Portfolio
The following table presents loans by type at the end of each of the last two
years.
December 31,
---------------
1998 1997
---- ----
(Amounts are presented in thousands)
Commercial $4,512 928
Real estate 4,183 167
Consumer 1,167 468
------ -----
9,862 1,563
Less: Allowance for loan losses 198 32
------ -----
Loans, net $9,664 1,531
====== =====
As of December 31, 1998, maturities of loans in the indicated classifications
were as follows (amounts are presented in thousands):
Maturity Commercial Real Estate Total
- -------- ---------- ----------- -----
Within 1 year 3,063 1,733 4,796
1 to 5 years 1,357 1,847 3,204
Over 5 years 92 603 695
----- ----- -----
Totals 4,512 4,183 8,621
===== ===== =====
29
<PAGE>
Table 4
Loan Portfolio, continued
As of December 31, 1998, the interest terms of loans in the indicated
classification for the indicated maturity ranges are as follows (amounts are
presented in thousands):
Fixed Variable
Interest Rates Interest Rates Total
-------------- -------------- -----
Commercial
1 to 5 years $1,357 - 1,357
Over 5 years 92 - 92
Real estate
1 to 5 years $1,847 - 1,847
Over 5 years 603 - 603
The following summarizes past due and non-accrual loans, other real estate and
repossessions, and income that would have been reported on non-accrual loans as
of December 31, 1998 and 1997 (amounts are presented in thousands):
December 31,
------------
1998 1997
---- ----
Other real estate and repossessions $ - -
Accruing loans 90 days or more past due - -
Non-accrual loans - -
Interest on non-accrual loans which
would have been reported 3 -
A loan is placed on non-accrual status when, in management's judgement, the
collection of interest appears doubtful. As a result of management's ongoing
review of the loan portfolio, loans are classified as non-accrual generally when
they are past due in principal or interest payments for more than 90 days or it
is otherwise not reasonable to expect collection of principal and interest under
the original terms. Exceptions are allowed for 90 day past due loans when such
loans are well secured and in process of collection. Generally, payments
received on non-accrual loans are applied directly to principal.
30
<PAGE>
Table 5
Allowance for Loan Losses
The following table summarizes information concerning the allowance for loan
losses:
December 31,
------------
(Amounts are presented in thousands)
1998 1997
---- ----
Balance at beginning of year $ 32 -
Charge-offs:
Commercial 127 -
Real estate - -
Consumer 22 -
---- --
Total chargeoffs 149 -
---- --
Recoveries:
Commercial - -
Real estate - -
Consumer - -
---- --
Total recoveries - -
---- --
Net charge-offs 149 -
Additions charged to operations 315 32
---- --
Balance at end of year $198 32
==== ==
Ratio of net charge-offs during the period
to average loans outstanding during
the period 2.49% -
==== ==
The Bank utilizes an external independent loan review function. All loans
$100,000 or more are reviewed annually and placed into various loan grading
categories which assist in developing lists of potential problem loans. These
loans are constantly monitored by the loan review function to ensure early
identification of deterioration. The formal allowance for loss adequacy test is
performed on a monthly basis. Specific amounts of loss are estimated on problem
loans and historical loss percentages are applied to the balance of the
portfolio using certain portfolio stratifications. Additionally, the evaluation
takes into consideration such factors as changes in the nature and volume of the
loan portfolio, current economic conditions, regulatory examination results, and
the existence of loan concentrations.
31
<PAGE>
Table 6
Deposits
The average balance of deposits and the average rates paid on such deposits are
summarized for the periods indicated in the following table.
December 31,
------------
(Amounts are presented in thousands)
1998 1997
Amount Rate Amount Rate
------ ---- ------ ----
Demand deposits:
Non-interest bearing $ 4,082 - 245 -
Interest-bearing demand
and savings 8,727 2.88% 810 2.72%
Time deposits 6,210 5.52% 407 5.65%
------- -----
Totals $19,019 1,462
======= =====
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1998 are summarized as follows (amounts are presented in
thousands):
Within 3 months $ 923
After 3 through 6 months 503
After 6 through 12 months 1,141
After 12 months 404
------
Total $2,971
======
Table 7
Selected Ratios
The following table sets out certain ratios of the Company for the years
indicated.
1998 1997
---- ----
Net loss to average stockholders' equity (7.92)% (11.67)%
Dividends to net income - -
Average equity to average assets 28.10 % 62.69 %
32
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECATUR FIRST BANK GROUP, INC
- -------------------------------------------------------------------------------------------------
DIRECTORS
<S> <C> <C>
John L. Adams, Jr. Merriell Autrey James A. Baskett
President & Managing Broker Retired Banker Business Owner
Clairmont Place Realty, Inc. Prolific Impressions, Inc.
M. Bobbie Bailey John Walter Drake William F. Floyd
Business Owner Attorney Secretary-Treasurer
Our Way, Inc. & Bailey Design Co. McCurdy & Candler, LLC Southern Champion Const., Inc.
Robert E. Lanier Carol Nickola Lynn Pasqualetti
President Health Care Consultant President and Co-Owner
REL Properties, Inc. HLM Accounting & Tax, Inc.
Roger K. Quillen James T. Smith, III Kirby A. Thompson
Attorney Building Contractor Business Owner
Three S Company, Inc. KAT Consulting
</TABLE>
Judy B. Turner
President and Chief Executive Officer
Decatur First Bank Group, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DECATUR FIRST BANK
- --------------------------------------------------------------------------------------------------------
OFFICERS AND STAFF
OFFICERS
- --------
<S> <C> <C>
Judy B. Turner Greg M. Autrey Ann S. Randall
President and Chief Executive Officer Senior Vice President & Senior Vice President &
Senior Lender Cashier
Steve King Midge McLean Jane Forcucci
Vice President/SBA Lender Assistant Vice President/ Assistant Vice President/
Commercial Lender Sales Manager
Doris M. Shelton
Corporate Secretary
STAFF
- -----
Pam Bradley Regina Breed Angela Carter
Customer Service Specialist Lead Teller Teller
Denise Handon Juanita Marzette Kelly McConnell
Loan Administration Senior Customer Service Specialist Operations Assistant
Ronald Rice Arlia Slotkin Carrie Surfus
Courier Customer Service Specialist Teller
</TABLE>
A copy of the Company's 1998 Annual Report on Form 10-KSB, filed with the
Securities and Exchange Commission is available at no charge to each
shareholder upon written request to Judy B. Turner, President and CEO, Decatur
First Bank Group, Inc., 1120 Commerce Drive, Decatur, Georgia 30030.
[LOGO OF DECATUR FIRST BANK APPEARS HERE]
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,339,634
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,290,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,884,149
<INVESTMENTS-CARRYING> 900,752
<INVESTMENTS-MARKET> 904,835
<LOANS> 9,861,827
<ALLOWANCE> 198,055
<TOTAL-ASSETS> 38,446,100
<DEPOSITS> 30,001,751
<SHORT-TERM> 0
<LIABILITIES-OTHER> 88,052
<LONG-TERM> 0
0
0
<COMMON> 4,709,620
<OTHER-SE> 3,646,677
<TOTAL-LIABILITIES-AND-EQUITY> 8,356,297
<INTEREST-LOAN> 561,449
<INTEREST-INVEST> 847,429
<INTEREST-OTHER> 247,865
<INTEREST-TOTAL> 1,656,743
<INTEREST-DEPOSIT> 593,913
<INTEREST-EXPENSE> 593,913
<INTEREST-INCOME-NET> 1,062,830
<LOAN-LOSSES> 314,800
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,408,764
<INCOME-PRETAX> (490,923)
<INCOME-PRE-EXTRAORDINARY> (490,923)
<EXTRAORDINARY> 0
<CHANGES> (78,560)
<NET-INCOME> (569,483)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
<YIELD-ACTUAL> 4.27
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,000
<CHARGE-OFFS> 148,745
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 198,055
<ALLOWANCE-DOMESTIC> 198,055
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
