<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
------ ------
Commission file number 000-24139
Decatur First Bank Group, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2254289
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1120 Commerce Drive
Decatur, Georgia 30030
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
404-373-1000
-----------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
----- ----
Common stock, par value $5 per share: 941,824 shares
outstanding as of May 4, 1999
Transitional Small Business Disclosure Format
(check one)
Yes No XX
----- -----
<PAGE>
DECATUR FIRST BANK GROUP, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet (unaudited) at March 31, 1999 3
Statement of Operations (unaudited) for the Three
Months Ended March 31, 1999 and 1998 4
Statement of Comprehensive Income (unaudited) for the Three
Months Ended March 31, 1999 and 1998 5
Statement of Cash Flows (unaudited) for the Three
Months Ended March 31, 1999 and 1998 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DECATUR FIRST BANK GROUP, INC.
Balance Sheet
March 31, 1999
(Unaudited)
Assets
------
Cash and due from banks $ 1,604,320
Federal funds sold 2,090,000
-----------
Cash and cash equivalents 3,694,320
Investment securities available for sale 21,638,044
Investment securities held to maturity 900,225
Loans, net 9,876,690
Premises and equipment, net 1,205,943
Accrued interest receivable and other assets 444,260
-----------
$37,759,482
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 6,809,733
Interest-bearing 22,696,760
-----------
Total deposits 29,506,493
Accrued interest payable and other liabilities 81,926
-----------
Total liabilities 29,588,419
-----------
Stockholders' equity:
Common stock, $5 par value; authorized
10,000,000 shares; issued and outstanding 4,709,620
941,924 shares 4,669,936
Additional paid-in capital (1,126,277)
Accumulated deficit (1,100)
Treasury stock (100 shares), at cost (81,116)
Unrealized loss on securities available for sale, net of tax -----------
8,171,063
-----------
Total stockholders' equity $37,759,482
===========
See accompanying notes to financial statements.
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<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Operations
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Interest income:
Interest and fees on loans $ 233,449 85,779
Interest on federal funds sold 40,765 59,522
Investment securities 296,287 155,093
--------- -------
Total interest income 570,501 300,394
Interest expense on deposits 215,803 90,681
--------- -------
Net interest income 354,698 209,713
Provision for loan losses 9,293 42,000
--------- -------
Net interest income after provision for loan losses 345,405 167,713
--------- -------
Other income:
Service charges on deposit accounts 29,932 12,844
Securities gains 992 -
Gain on sales of loans 19,915 -
Other operating income 18,079 5,046
--------- -------
Total other income 68,918 17,890
--------- -------
Other expense:
Salaries and other personnel expense 207,237 139,547
Net occupancy and equipment expense 44,973 44,799
Other operating expense 173,041 102,486
--------- -------
Total other expense 425,251 286,832
--------- -------
Net loss $ 10,928 101,229
========= =======
Loss per common share based on average outstanding
shares of 941,887 in 1999 and 941,544 in 1998:
Net loss per share $ 0.01 0.11
========= =======
See accompanying notes to financial statements.
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<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statement of Comprehensive Income
For the Three Months Ended March 31, 1999 and 1998
Three Months Ended
March 1999 March 1998
---------- ----------
Net loss (10,928) (101,229)
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available-for-sale:
Unrealized losses arising
during the period (174,198) (12,417)
Less: Reclassification adjustment
for gains included in net earnings 992 -
-------- --------
Other comprehensive income (173,206) (12,417)
-------- --------
Comprehensive income (loss) (184,134) (113,646)
======== ========
See accompanying notes to financial statements.
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<PAGE>
DECATUR FIRST BANK GROUP, INC.
Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net loss $ (10,928) (101,229)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 9,293 42,000
Depreciation, amortization and accretion 49,156 33,511
Securities gains (992) -
Change in other (47,873) (34,238)
----------- ---------
Net cash used by operating activities (1,344) (59,956)
----------- ---------
Cash flows from investing activities:
Proceeds from sales, maturities and paydowns
of investment securities available for sale 850,992 1,190,000
Purchases of investment securities held to maturity - (500,000)
Purchases of investment securities available for
sale (3,806,680) (3,712,000)
Change in loans (222,211) (2,212,826)
Purchases of premises and equipment (259,713) (29,709)
----------- ---------
Net cash used by investing activities (3,437,612) (5,264,535)
----------- ---------
Cash flows from financing activities:
Net change in deposits (495,258) 5,781,055
Purchase of treasury shares (1,100) -
----------- ---------
Net cash provided by financing
activities (496,358) 5,781,055
----------- ---------
Net change in cash and cash equivalents (3,935,314) 456,564
Cash and cash equivalents at beginning of the period 7,629,634 6,326,791
----------- ---------
Cash and cash equivalents at end of period $ 3,694,320 6,783,355
=========== =========
Noncash investing activities:
Change in unrealized loss on securities available
for sale, net of tax $ (173,206) (12,417)
See accompanying notes to financial statements.
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<PAGE>
DECATUR FIRST BANK GROUP, INC.
Notes to Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
--------------------------------------
Decatur First Bank Group, Inc. (the Company), a bank holding company, owns
100% of the outstanding common stock of Decatur First Bank (the Bank),
which operates in the Decatur, Georgia area. The Bank opened for business
on September 2, 1997.
The consolidated financial statements include the accounts of the Company
and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation.
The interim financial statements included herein are unaudited but reflect
all adjustments which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for
the inteim period presented. All such adjustments are of a normal recurring
nature. The results of operations for the period ended March 31, 1999 are
not necessarily indicative of the results of a full year's operations.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles (GAAP) and with general practices within the banking industry.
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ significantly from
those estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determinations of the allowance for loan
losses, the valuation of real estate acquired in connection with or in lieu
of foreclosure on loans, and valuation allowances associated with deferred
tax assets, the recognition of which are based on future taxable income.
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<PAGE>
Item 2.
DECATUR FIRST BANK GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999 and 1998
Financial Condition
Total assets at March 31, 1999 were $37,759,482 representing a $687,000
(2%) decrease from December 31, 1998. Deposits decreased $495,258 (2%) from
December 31, 1998. Loans increased $222,211 (2%). The allowance for loan losses
at March 31, 1999 totaled $216,622, representing 2.1% of total loans compared to
December 31, 1998 totals of $198,055 which represented 2.0% of total loans. Cash
and cash equivalents decreased $3,935,314 from December 31, 1998.
There were no related party loans or other loans which were considered
nonperforming at March 31, 1999.
Results of Operations
For the three months ended March 31, 1999, the Bank's net interest spread
is 2.88%, while net interest margin, which considers the effect of non-interest
bearing deposits, was 4.13%.
Net loss for the three months ended March 31, 1999 was $10,928, compared to
a net loss of $101,229 for the same period for 1998. The decrease in net loss
was primarily associated with an increase in net interest income ($178,000) as
well as an increase in non-interest income $51,000). These increases were offset
by $138,000 in additional other expenses.
For the three months ended March 31, 1999, the Bank's yield on earning
assets has been 6.72% while the cost of funding sources is 3.84%. While net
interest spread is 2.88%, net interest margin, which considers the effect of
non-interest bearing deposits, was 4.13%, a decrease of 63 basis points as
compared to the same period in the prior year. Net interest margin is lower than
the prior year as non-interest bearing deposits declined relative to total
deposits. Net interest income in the aggregate increased for the three months
ended March 31, 1999, over the same period for 1998 primarily due to the volume
of earnings assets and interest bearing liabilities. Management monitors the
rate sensitivity of earnings assets and interest-bearing liabilities over the
entire life of these instruments, but places particular emphasis on the first
year.
Other income increased approximately $51,000 for the three months ended
March 31, 1999, compared to the same period for 1998. This increase was
primarily associated with an increase in service charges on deposit accounts of
approximately $17,000 related to an increase in the number of accounts and a
$20,000 increase in gains on the sale of SBA loans.
Other expense increased approximately $138,000 for the three months ended
March 31, 1999, compared to the same period for 1998, primarily due to an
increase in the volume of business, which led to additional expense necessary to
service new business.
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<PAGE>
Capital
The following tables present Decatur First Bank Group, Inc.'s regulatory
capital position at March 31, 1999:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 42.62%
Tier 1 Tangible Capital minimum requirement 4.00%
------
Excess 38.62%
======
Total Capital, Actual 43.64%
Total Capital minimum requirement 8.00%
------
Excess 35.64%
======
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 21.63%
Minimum leverage requirement 4.00%
------
Excess 17.63%
======
Year 2000
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The approach of the Year 2000 presents an issue in that
many computer programs have been written using two digits rather than four to
define the applicable year. Computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the Year 2000. For
example, computer systems may compute payment, interest, delinquency or other
amounts important to the operations of the Company based on the wrong date. This
could result in internal system failure or miscalculation, and also creates risk
for the Company from third parties with whom the Company deals on financial
transactions.
The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. The Company has developed a Year 2000 Readiness plan
based in part on the guidelines and timetables issued by the FDIC. The Company's
Readiness plan focuses on four primary areas: (1) service providers, (2)
in-house computers and systems located at the Bank's office, (3) third-party and
customer relationships, and (4) contingency planning. The Company has designated
a Year 2000 Committee, headed by its Cashier/Chief Operating Officer who is
making Year 2000 readiness assessments and remediation where necessary. The
Company has also established a Year 2000 Steering Committee consisting of its
President/CEO and three additional Board members to monitor activities and to
offer support and guidance.
Service Providers. The Company has identified all mission critical service
providers. Of the four considered critical, the Company has a detailed plan
written to facilitate testing of mutually transmitted information for three of
them. As to the fourth, the Company has elected to change to a data processing
company that is well established and is currently using software designated as
compliant. Conversion to this company occurred during the beginning of 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.
-9-
<PAGE>
Year 2000, continued
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 on them 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 has formulated
a detailed Year 2000 contingency plan, which assesses several possible scenarios
to which the Company may be required to react.
Financial Implications. The Company believes that, since the majority of its
equipment is relatively new, the Year 2000 problem will not pose significant
internal operational problems or generate material additional expenditures.
Maintenance, testing and modification costs will be expensed as incurred. The
Company does not expect the amounts required to be expensed to resolve Year 2000
issues to have a material effect on its financial position or results of
operations. The Company currently estimates that the costs of assessing, testing
and remediation of Year 2000 issues will total approximately $50,000. The
anticipated costs associated with the Company's Year 2000 compliance program do
not include time and costs that may be incurred as a result of any potential
failure of third parties to become Year 2000 compliant or costs to implement the
Company's contingency plans.
Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of the Company and the Bank. External factors, which
include but are not limited to electric, telephone and water service, are beyond
the control of the Company and the failure of such systems could have a negative
impact on the Company, its customers and third parties on whom the Company
relies for its day-to-day operations. The business of many of the Company's
customers may be negatively affected by the Year 2000 issue, and any financial
difficulties incurred by the Company's customers in connection with the century
change could negatively affect such customers' ability to repay loans to the
Company. The failure of the Bank's computer system or applications or those
operated by customers or third parties could have a material adverse effect on
the Company's results of operations and financial condition.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Company's Year 2000 compliance
efforts and the impact of Year 2000 issues on the Company's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of the company.
Some of these factors include, but are not limited to representations by the
Company's vendors, providers, counterparties, technological advances, economic
considerations and consumer perceptions. The Company's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.
-10-
<PAGE>
PART II. OTHER INFORMATION
DECATUR FIRST BANK GROUP, INC.
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
Pursuant to Rule14a-4(c)(1) promulgated under the Securities Exchange
Act of 1934, as amended, shareholders desiring to present a proposal for
consideration at the Company's 2000 Annual Meeting of Shareholders must
notify the Company in writing at its principal office at 1120 Commerce
Drive, Decatur, Georgia 30030 of the contents of such proposal no later
than February 17, 2000. Failure to timely submit such a proposal will
enable the proxies appointed by management to exercise their
discretionary voting authority when the proposal is raised at the Annual
Meeting of Shareholders without any discussion of the matter in the
proxy statement.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None
-11-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECATUR FIRST BANK GROUP, INC.
By:
---------------------------------------
Judy B. Turner
President, Chief Executive Officer and
Principal Accounting Officer
Date:
--------------------------------------
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<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,604
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,090
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,638
<INVESTMENTS-CARRYING> 900
<INVESTMENTS-MARKET> 0
<LOANS> 9,877
<ALLOWANCE> 217
<TOTAL-ASSETS> 37,759
<DEPOSITS> 29,506
<SHORT-TERM> 0
<LIABILITIES-OTHER> 82
<LONG-TERM> 0
0
0
<COMMON> 4,710
<OTHER-SE> 3,461
<TOTAL-LIABILITIES-AND-EQUITY> 37,759
<INTEREST-LOAN> 233
<INTEREST-INVEST> 296
<INTEREST-OTHER> 41
<INTEREST-TOTAL> 570
<INTEREST-DEPOSIT> 216
<INTEREST-EXPENSE> 216
<INTEREST-INCOME-NET> 354
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 425
<INCOME-PRETAX> (11)
<INCOME-PRE-EXTRAORDINARY> (11)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
<YIELD-ACTUAL> 6.72
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 198
<CHARGE-OFFS> 0
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 217
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