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, 1999
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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,
$5.00 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: $3,103,524
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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: $11,782,863 AS OF MARCH 13, 2000.
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. 942,629 AS OF MARCH 24,
2000.
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, 1999 are incorporated by reference into Part I and II. Portions of
the Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held
May 2, 2000, 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.........................................................................10
ITEM 3. LEGAL PROCEEDINGS.................................................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................10
PART II..........................................................................................................11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............11
ITEM 7. FINANCIAL STATEMENTS..............................................................................12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..............12
PART III.........................................................................................................12
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT......................................................................................12
ITEM 10. EXECUTIVE COMPENSATION............................................................................12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................13
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K...........................................................14
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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's principal business is the ownership and management of the
Bank. 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 capital to the Bank. For example, we may assist the Bank in
maintaining its required capital ratios by borrowing money and contributing the
proceeds of that debt to the Bank as primary capital.
THE BANK
GENERAL
The Bank was chartered under the laws of the State of Georgia and 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
boxes, 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, and businesses located in, 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. The City of Decatur is approximately four square miles in size
and includes over 12 distinct neighborhoods. 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. According to
information provided by the FDIC, as of June 30, 1999, Decatur was serviced by
ten financial institutions with a total of 32 offices in Decatur. As of June 30,
1999, total deposits within Decatur for these institutions were $1.4 billion of
which $32.3 million were held by the Bank. These financial institutions offer
all of the services that the Bank offers. Management believes that the Bank's
local ownership and management as well as its focus on personalized service
helps it to compete with these institutions and to attract deposits and loans in
our market area.
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 loans fully secured by
good collateral. The Bank's statutory capital base is the lower of the sum of
its common stock, paid-in capital, appropriated retained earnings, and capital
debt, or the amount of the Bank's net assets. As of December 31, 1999, the
Bank's legal lending limits were approximately $1.1 million for unsecured loans
and approximately $1.8 million 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 including equipment loans, loans to support working capital
and loans for inventory purchases. 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
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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.
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 exceeds 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, 1999, the Company employed 16 full-time employees and
three part-time employees. The Company considers its relationship with its
employees to be excellent.
SUPERVISION AND REGULATION
Both the Company and the Bank are subject to extensive state and
federal banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to us.
THE COMPANY
Since the Company owns all of the capital stock of the Bank, it is a
bank holding company under the federal Bank Holding Company Act of 1956. As a
result, the Company is primarily subject to the supervision, examination, and
reporting requirements of the Bank Holding Company Act and the regulations of
the Federal Reserve.
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ACQUISITIONS OF BANKS. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
o Acquiring 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;
o Acquiring all or substantially all of the assets of any bank; or
o Merging or consolidating with any other bank holding company.
Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and adequately
managed bank holding company located outside of Georgia may purchase a bank
located inside Georgia. In each case, however, restrictions may be placed on the
acquisition of a bank which has only been in existence for a limited amount of
time or an acquisition which may result in specified concentrations of deposits.
CHANGE IN BANK CONTROL. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or a company acquires 10% or more, but less than 25%, of any class
of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Act of 1934, or no other person
owns a greater percentage of that class of voting securities immediately after
the transaction.
PERMITTED ACTIVITIES. Under the Bank Holding Company Act, a bank holding
company, which has not qualified or elected to become a financial holding
company is generally prohibited from engaging in or acquiring direct or indirect
control of more than 5% of the voting shares of any company engaged in
nonbanking activities unless prior to the enactment of the Gramm-Leach-Bliley
Act the Federal Reserve found those activities to be so closely related to
banking as to be a proper incident to the business of banking. Activities that
the Federal Reserve has found to be so closely related to banking to be a proper
incident to the business of banking include:
o factoring accounts receivable,
o acquiring or servicing loans,
o leasing personal property,
o conducting discount securities brokerage activities,
o performing selected data processing services,
o acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions, and
o performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
On November 12, 1999 President Clinton signed the Gramm-Leach-Bliley
Act, which amends the Bank Holding Company Act and greatly expand the activities
in which bank holding companies and affiliates of banks are permitted to engage.
The Gramm-Leach-Bliley Act eliminates many federal and
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state law barriers to affiliations among banks and securities firms, insurance
companies, and other financial service providers. The provisions of the
Gramm-Leach-Bliley Act relating to permitted activities of bank holding
companies and affiliates of banks became effective on March 11, 2000.
Generally, if the Company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, the Bank and any
other depository institution subsidiary of the Company must be well capitalized
and well managed and must have a Community Reinvestment Act rating of at least
satisfactory. Additionally, the Company must file an election with the Federal
Reserve to become a financial holding company and must provide the Federal
Reserve with 30 days written notice prior to engaging in a permitted financial
activity. Although we are eligible to elect to become a financial holding
company, we currently have no plans to make such an election.
SUPPORT OF SUBSIDIARY INSTITUTIONS. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries. This
support may be required at times when, without this Federal Reserve policy, the
bank holding company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to a bank will be repaid only after its
deposits and 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.
THE BANK
The Bank is a commercial bank chartered under the laws of the State of
Georgia. Accordingly, 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. Additionally, the Bank's deposits are insured by the FDIC to the maximum
extent provided by law. The Bank is also 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.
PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed. The federal banking agencies have also specified by regulation the
relevant capital levels for each of the other categories. At December 31, 1999,
we qualified for the well-capitalized category.
Federal banking regulators are required to take some mandatory
supervisory actions and are authorized to take other discretionary actions with
respect 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. An institution in any of the undercapitalized categories 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 up to the lesser of 5%
of an undercapitalized subsidiary's assets or the
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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. The Federal Reserve regulations also establish procedures for
downgrading an institution to a lower capital category based on supervisory
factors other than capital.
FDIC INSURANCE ASSESSMENTS. The FDIC has adopted a risk-based
assessment system for determining an insured depository institutions' insurance
assessment rate. The system that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. An
institution is placed into 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. The FDIC also assigns an institution to one of three
supervisory subgroups 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. Assessments range from 0 to 27 cents per
$100 of deposits, depending on the institution's capital group and supervisory
subgroup. In addition, the FDIC imposes assessments to help pay off the $780
million in annual interest payments on the $8 billion Financing Corporation
bonds issued in the late 1980s as part of the government rescue of the thrift
industry. This assessment rate is adjusted quarterly and ranged from 1.16 cents
to 1.22 cents per $100 of deposits in 1999.
The FDIC may terminate its insurance of deposits 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.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires the
appropriate federal regulator, in connection with their examinations of
financial institutions within their jurisdiction, to evaluate the record of each
financial institution in meeting the credit needs of its local community,
including low and moderate-income neighborhoods. The appropriate federal
regulator considers these factors in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these
criteria could impose additional requirements and limitations on the Bank. Under
the Gramm-Leach-Bliley Act, banks with aggregate assets of not more than $250
million are subject to a Community Reinvestment Act examination only once every
60 months if the bank receives an outstanding rating, once every 48 months if it
receives a satisfactory rating and as needed if the rating is less than
satisfactory. Additionally, under the Gramm-Leach-Bliley Act, banks are required
to publicly disclose the terms of various Community Reinvestment Act-related
agreements.
OTHER REGULATIONS. Interest and other charges collected or contracted
for by the Bank are subject to state usury laws and federal laws concerning
interest rates. The Bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
o The federal Truth-In-Lending Act, governing disclosures of credit
terms to consumer borrowers;
o The Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
o The Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
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o The Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
o The Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
o The rules and regulations of the various federal agencies charged
with the responsibility of implementing these federal laws.
The deposit operations of the Bank are subject to:
o The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial
records; and
o The Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which governs automatic
deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
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 FDIC and Georgia Department of Banking and Finance, in the case of
the Bank. The Federal Reserve has established a risk-based and a leverage
measure of capital adequacy for bank holding companies that is substantially
similar to that adopted by the FDIC for banks under its jurisdiction.
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, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk 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%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consists of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consists of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 1999, our consolidated ratio of total capital to
risk-weighted assets was 22.75% and our consolidated ratio of Tier 1 Capital to
risk-weighted assets was 21.73%.
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 other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. At December 31, 1999, our consolidated leverage ratio was 17.66%. The
guidelines also provide that bank holding companies experiencing internal growth
or
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making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. The Federal Reserve considers the leverage ratio and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The Bank and the Company are also both subject to other capital guidelines
issued by the Georgia Department of Banking and Finance and the Federal Reserve,
respectively, which provide for minimum ratios of total capital to total assets.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and certain other restrictions on its business. As
described above, substantial additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "--Prompt Corrective Action."
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 it. 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 it 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" above.
The Georgia Department of Banking and Finance also regulates the Bank's
dividend payments and must approve dividend payments that would exceed 50% of
the Bank's net income for the prior year. Our payment of dividends may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Company and the Bank are subject to the provisions of Section 23A
of the Federal Reserve Act. Section 23A places limits on the amount of:
o loans or extensions of credit to affiliates;
o investment in affiliates;
o the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
o loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
o any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
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The aggregate of all of the above transactions is limited in amount, as
to any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.
The Company and the Bank are also subject to the provisions of Section
23B of the Federal Reserve Act which, among other things, prohibits an
institution from engaging in the above transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
The Bank is also subject to restrictions on extensions of credit to its
executive officers, directors, certain principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties, and (2) must not involve more
than the normal risk of repayment or present other unfavorable features.
PRIVACY
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing personal financial
information with nonaffiliated third parties except for third parties that
market the institutions' own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any
nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing through electronic mail to the consumer.
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.
EFFECT OF GOVERNMENTAL MONETARY POLICES
Our earnings are affected by domestic economic conditions and the monetary and
fiscal policies of the United States government and its agencies. The Federal
Reserve Bank's monetary policies have had, and are likely to continue to have,
an important impact on the operating results of commercial banks through its
power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments and
deposits through its open market operating in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.
9
<PAGE>
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 30, 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 1, 2002. The Agreement to Lease
provides that the Company has an option to purchase the building under certain
conditions.
The building currently contains 9,200 square feet of usable space. Prior
to opening the Bank, the Company renovated the building, and during fiscal year
1999 the Company completed additional renovations to the building. The top floor
contains 6,613 square feet and was converted into the banking lobby and
executive offices. The lower level, which contains 2,587 square feet, is used
for operation 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.
10
<PAGE>
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 1 and is incorporated herein by reference.
The Company did not sell any unregistered shares of its Common Stock,
$5.00 par value, during fiscal year 1997.
During fiscal year 1999 and 1998 the Company granted 665 shares and 380
shares, respectively, of its Common Stock, $5.00 par value, to selected
employees as compensation for their services to the Bank. Since the Company only
granted the shares to employees, the transactions did not involve a public
offering, and therefore were exempt from registration under Section 4(2) of the
Securities Act of 1933. The following table sets forth the number of shares
issued to employees during the periods indicated.
NUMBER
DATE OF SHARES
---- ---------
April 1999 200
June 1999 200
August 1999 265
---
1999 TOTAL 665
June 1998 40
August 1998 300
September 1998 40
----
1998 TOTAL 380
Additionally, on March 17, 1998, the Company granted selected employees
options to purchase an aggregate of 80,031 shares of its Common Stock, $5.00 par
value. The options are exercisable at $10.00 per share, vest in equal 20% annual
increments beginning on June 30, 1998 and have a maximum term of ten years.
Since the options were granted to employees, the option grants did not involve a
public offering, and therefore were exempt from registration under Section 4(2)
of the Securities Act of 1933.
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 4 through 7, and is
incorporated herein by reference.
11
<PAGE>
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, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 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 May 2, 2000, under
the following headings, and are incorporated herein by reference.
"Proposal One: Election of Directors - Class II Director Nominees, -
Class III Continuing Directors, and - Class I Continuing Directors," at
pages 3 through 4.
"Executive Officers," at page 5.
"Section 16(a) Beneficial Ownership Reporting Compliance," at page 10.
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 May 2, 2000, under
the heading, "Compensation," at pages 5 through 7, and are incorporated herein
by reference.
12
<PAGE>
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 May 2, 2000, under
the headings, "Security Ownership of Certain Beneficial Owners," at pages 8
through 9, 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 May 2, 2000, under
the headings, "Related Party Transactions," at page 10, and "Compensation," at
pages 5 through 7, and are incorporated herein by reference.
13
<PAGE>
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.)(4/)
13.1 Decatur First Bank Group, Inc. 1999 Annual Report to
Shareholders. Except with respect to those portions
specifically incorporated by reference into this Report, the
Company's 1999 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 1999: None.
- --------------------
* 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 year ended December 31, 1997.
4/ Incorporated herein by reference to exhibit of same number in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
14
<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 24, 2000
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 24, 2000
- ------------------------------------
John L. Adams, Jr.
/s/ Merriell Autrey, Jr. Director March 24, 2000
- ------------------------------------
Merriell Autrey, Jr.
/s/ Mary Bobbie Bailey Director March 24, 2000
- ------------------------------------
Mary Bobbie Bailey
15
<PAGE>
Signature Title Date
--------- ----- ----
/s/ James A. Baskett Director March 24, 2000
- -----------------------
James A. Baskett
/s/ John Walter Drake Director March 24, 2000
- -----------------------
John Walter Drake
/s/ William F. Floyd Director March 24, 2000
- -----------------------
William F. Floyd
/s/ Robert E. Lanier Director March 24, 2000
- -----------------------
Robert E. Lanier
/s/ Carol G. Nickola Director March 24, 2000
- -----------------------
Carol G. Nickola
/s/ Lynn Pasqualetti Director March 24, 2000
- -----------------------
Lynn Pasqualetti
Director
- -----------------------
Roger K. Quillen
/s/ James T. Smith, III Director March 24, 2000
- -----------------------
James T. Smith, III
/s/ Kirby A. Thompson Director March 24, 2000
- -----------------------
Kirby A. Thompson
/s/ Judy B. Turner Director, President and March 24, 2000
- ----------------------- Chief Executive Officer (Principal
Judy B. Turner Executive, Financial and Accounting Officer)
16
<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.)4/
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.
4/ Incorporated herein by reference to exhibit of same number in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
EXHIBIT 13.1
1999 ANNUAL REPORT
[PHOTO APPEARS HERE]
DECATUR FIRST
BANK GROUP, INC.
<PAGE>
DECATUR FIRST BANK GROUP, INC.
Table of Contents
Page
----
To Our Shareholders............................................ 2
Selected Financial Data........................................ 3
Management's Discussion and Analysis........................... 4
Independent Auditors' Report................................... 9
Consolidated Financial Statements.............................. 10
Notes to Consolidated Financial Statements..................... 15
Statistical Information........................................ 26
Corporate and Shareholder Information.......................... 31
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 9, 2000, the Company had 871 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.
The Company has 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 1999 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.
1
<PAGE>
TO OUR SHAREHOLDERS:
What a great year! 1999 brought a lot of challenges to Decatur First Bank - Y2K,
data processing conversion and the addition to our building. Each of these
challenges was successfully met and is now behind us.
New products were added. Internet banking is up and running. First mortgages may
be accessed through Decatur First Bank. Companies now have a new way to borrow
on their accounts receivable - Business Manager.
And most exciting of all for our shareholders, DECATUR FIRST BANK HAD ITS FIRST
PROFITABLE YEAR!! Although the plan called for losing $54,000, we actually made
$100,000 pre-tax! A tax treatment relating to organizational expenses and
recognizing the tax benefit of these cumulative losses was taken, which brought
after tax income to $460,000. This is a one-time accounting entry and shouldn't
be used for comparison purposes in the future.
Establishing good, long-term relationships is our goal. We succeeded in growing
deposits to $41,232,000, which is $3,549,000 over plan. Loans were $23,715,000,
which is $3,577,000 over plan.
We are proud to be part of the Decatur community and have supported it as it has
supported us. During 1999, we were able to contribute to 28 community
organizations by supplying either money or people resources. We added four new
positions and were able to fill two of those openings with residents of Decatur.
We continue to do business with Decatur companies whenever possible.
The year 2000 offers many opportunities for Decatur First Bank. We want to
expand the customer base for the three services added in 1999 - Internet,
Mortgage and Business Manager. We continue to study products that may be
beneficial to our customers. We are looking for expansion opportunities both to
reach new markets and to increase the service in our existing markets.
We're excited about the opportunities that lie ahead. We hope you will continue
to be part of Decatur First Bank and invite you to call us for all of your
banking needs!
Sincerely,
/s/ Judy B. Turner
------------------
Judy B. Turner
President and CEO
2
<PAGE>
DFB
[DECATURFIRST BANK GRAPHIC APPEARS HERE]
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
FOR THE YEAR
<S> <C> <C> <C>
Net interest income $ 1,772 1,063 332
Provision for loan losses 152 315 32
Noninterest income 376 170 11
Noninterest expense 1,880 1,487 750
Income taxes (benefit) (411) - -
Net earnings (loss) 527 (569) (439)
PER COMMON SHARE
Basic and diluted earnings .56 (.60) (.47)
Cash dividends declared - - -
Book value 8.91 8.87 9.37
AT YEAR END
Loans 24,600 9,664 1,531
Earning assets 44,681 34,739 14,482
Assets 49,759 38,446 17,626
Deposits 41,224 30,002 8,666
Stockholders' equity 8,397 8,356 8,826
Common shares outstanding 942 942 942
AVERAGE BALANCES
Loans 15,867 5,847 765
Earning assets 37,744 24,898 9,568
Assets 40,993 27,776 11,751
Deposits 32,804 19,019 4,804
Stockholders' equity 8,123 8,620 6,897
Weighted average shares outstanding 942 942 942
KEY PERFORMANCE RATIOS
Return on average assets 1.29% (2.05)% (2.00)%
Return on average stockholders' equity 6.49% (6.60)% (11.32)%
Net interest margin 4.69% 4.27% 4.74%
Dividend payout ratio - - -
Average equity to average assets 19.82% 31.03% 58.69%
</TABLE>
3
<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 - 1999 VS. 1998
During 1999, average total assets increased $13,217,000 (48%) in
comparison with 1998. Average deposits increased $13,785,000 (72%) in 1999 over
1998 and average loans increased $10,020,000 (171%). Total assets at December
31, 1999 were $49,759,000 representing a $11,313,000 (29%) increase from
December 31, 1998. Deposits increased $11,223,000 (37%) from December 31, 1998.
Net loans increased $14,937,000 (154%).
Non-performing loans at December 31, 1999, totaled $0.
At December 31, 1999, and 1998, 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 September 30, 1999. The regulatory authority made no recommendations that, in
management's opinion, will have material effects on the Bank's liquidity,
capital resources or operations.
RESULTS OF OPERATIONS - 1999 VS. 1998
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, 1999, the Bank's yield on earning
assets was 7.27% while the cost of funding sources was 3.74%. While the net
interest spread is 3.53%, net interest margin, which considers the effect of
non-interest bearing deposits, was 4.69%, an increase of 42 basis points as
compared to the same period in the prior year. Net interest income in the
aggregate increased for the twelve months ended December 31, 1999 over the same
period for 1998 primarily due to the volume of earning assets and interest
bearing liabilities.
4
<PAGE>
RESULTS OF OPERATIONS - 1999 VS. 1998, CONTINUED
The provision for loan losses in 1999 was $152,000 compared to $315,000 in
1998. The decrease in the provision for loan losses was primarily attributable
to the recognition of certain specifically identified problem credits in 1998,
while the Bank experienced solid loan growth during 1999. 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 these losses. The allowance for loan losses at December 31, 1999
totaled $373,000, representing 1.5% of total loans compared to the December 31,
1998 total of $198,000 which represented 2% of total loans. The Bank experienced
net recoveries of $23,000 in 1999, compared to net charge-offs of $149,000
during 1998. An external independent loan review function is utilized by the
Bank. All loans $175,000 or more, fifty percent of loans $125,000 to $175,000,
twenty-five percent of loans $75,000 to $125,000 and fifteen percent of loans
$25,000 to $75,000 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, 1999
totaled $376,000, representing a $207,000 (122%) increase from December 31,
1998. This increase was associated with an increase in service charges on
deposit accounts of approximately $33,000 related to an increase in the number
of accounts and a $141,000 increase in fees from the sales of SBA loans as this
department continues to grow. Other operating expenses in 1999 were $1,880,000,
a $471,000 (33%) increase compared with 1998 levels, primarily due to additional
personnel and other operating expense. Additionally, in 1999 the Company
recognized the valuation allowance associated with its deferred tax assets. On a
consolidated basis, this recognition increased 1999 net earnings by $411,000.
INVESTMENTS
The investment portfolio consists of debt securities which provide the
Company 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 Company 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 Company 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 Company
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
$3,000,000.
Cash and cash equivalents decreased $2,777,000 from December 31, 1998.
Cash inflows from financing activities totaled $11,221,000, attributable to net
deposit increases during 1999. During 1999, cash provided by operating
activities totaled $350,000, while investing activities used $14,348,000, of
which $15,089,000 represented new loans to customers, net of repayments.
5
<PAGE>
CAPITAL RESOURCES
The Company continues to maintain adequate capital ratios. The following
tables present the Company's regulatory capital position at December 31, 1999.
Risk-Based Capital Ratios
Actual as of December 31, 1999
Tier 1 Capital 21.7%
Tier 1 Capital minimum requirement 4.0%
------
Excess 17.7%
=====
Total Capital 22.8%
Total Capital minimum requirement 8.0%
------
Excess 14.8%
=====
("Leverage Ratio") 17.6%
Minimum leverage requirement 4.0%
------
Excess 13.6%
=====
ASSET/LIABILITY MANAGEMENT
The objective of the Company's assets and liabilities management is 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. Management's overall philosophy is 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 assets and
interest-bearing liabilities outstanding at December 31, 1999 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 withdrawal, 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.
6
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999
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:
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 2,990 - - - 2,990
Investment securities - - 11,091 6,000 17,091
Loans 15,561 2,579 5,857 977 24,974
------- ------ -------- -------- ------
Total interest-bearing assets $ 18,551 2,579 16,948 6,977 45,055
====== ===== ====== ======= ======
Interest-bearing liabilities:
Deposits:
Savings and demand $ 15,936 - - - 15,936
Time deposits 3,056 12,244 743 641 16,684
------- ------ -------- -------- ------
Total interest-bearing liabilities $ 18,992 12,244 743 641 32,620
====== ====== ======== ======== ======
Interest sensitive difference
per period $ ( 441) (9,665) 16,205 6,336 12,435
======== ======= ====== ======= ======
Cumulative interest sensitivity
difference $ ( 441) (10,106) 6,099 12,435
======== ====== ======= ======
Cumulative difference to total
assets ( .98)% (22.43)% 13.54% 27.60%
======== ======= ======= =======
</TABLE>
At December 31, 1999, the difference between the Company's liabilities and
assets repricing or maturing within one year was approximately $10,000,000. 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 AND CHANGING PRICES
A bank's assets and liability structure is significantly different from
that of an industrial company in that substantially all assets and liabilities
of a bank are monetary in nature. Management believes the impact of inflation on
financial results depends upon the Company's ability to react to changes in
interest rates and by such reaction to reduce the inflationary impact on
performance. Interest rates do not necessarily move in the same direction, or at
the same magnitude, as the prices of other goods and services.
Various information shown elsewhere in the report will assist in the
understanding of how well the Company is positioned to react to changing
interest rates and inflationary trends. In particular, the summary of net
interest income, the maturity distribution, the composition of the loan and
security portfolios and the data on the interest sensitivity of loans and
deposits should be considered.
7
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
8
<PAGE>
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, 1999 and 1998, and the
related statements of operations, comprehensive income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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, 1999 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
January 27, 2000
9
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks $ 1,862,971 2,339,634
Federal funds sold 2,990,000 5,290,000
------------ ------------
Cash and cash equivalents 4,852,971 7,629,634
Investment securities available for sale 17,090,555 18,884,149
Investment securities held to maturity
(market value of $904,835) -- 900,752
Loans, net 24,600,372 9,663,772
Premises and equipment, net 1,951,842 965,280
Accrued interest receivable and other assets 1,263,156 402,513
------------ ------------
$ 49,758,896 38,446,100
============ ============
Liabilities and Shareholders' Equity
Deposits:
Demand $ 8,603,734 6,725,501
Money market and NOW accounts 15,005,873 12,294,834
Savings 930,260 673,702
Time 11,593,254 7,336,516
Time over $100,000 5,091,246 2,971,198
------------ ------------
Total deposits 41,224,367 30,001,751
Accrued interest payable and other liabilities 137,944 88,052
------------ ------------
Total liabilities 41,362,311 30,089,803
------------ ------------
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;
942,589 and 941,924 shares issued, respectively 4,712,945 4,709,620
Additional paid-in capital 4,674,924 4,669,936
Accumulated deficit (588,405) (1,115,349)
Treasury stock, at cost (140 shares) (1,600) --
Accumulated other comprehensive income (loss) (401,279) 92,090
------------ ------------
Total shareholders' equity 8,396,585 8,356,297
------------ ------------
$ 49,758,896 38,446,100
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $1,518,645 561,449 42,315
Interest on taxable investment securities 1,083,238 847,429 218,194
Interest on federal funds sold 125,224 247,865 138,020
---------- ---------- ----------
Total interest income 2,727,107 1,656,743 398,529
---------- ---------- ----------
Interest expense:
Interest on money market and NOW accounts 306,765 239,323 21,482
Interest on savings and time deposits 648,670 354,590 23,682
Other -- -- 21,886
---------- ---------- ----------
Total interest expense 955,435 593,913 67,050
---------- ---------- ----------
Net interest income 1,771,672 1,062,830 331,479
Provision for loan losses 152,090 314,800 32,000
---------- ---------- ----------
Net interest income after provision for loan losses 1,619,582 748,030 299,479
---------- ---------- ----------
Other income:
Service charges on deposit accounts 121,654 88,876 5,517
Gain on sale of loans 181,663 40,770 --
Other income 73,100 40,165 5,493
---------- ---------- ----------
Total other income 376,417 169,811 11,010
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 916,373 734,796 346,273
Occupancy and equipment 223,468 178,536 103,549
Other operating 740,336 495,432 300,045
---------- ---------- ----------
Total other expenses 1,880,177 1,408,764 749,867
---------- ---------- ----------
Earnings (loss) before income taxes and cumulative effect of
accounting change for organizational costs 115,822 (490,923) (439,378)
Income tax benefit 411,122 -- --
---------- ---------- ----------
Earnings (loss) before cumulative effect of accounting change
for organizational costs 526,944 (490,923) (439,378)
Cumulative effect of accounting change for organizational costs -- (78,560) --
---------- ---------- ----------
Net earnings (loss) $ 526,944 (569,483) (439,378)
========== ========== ==========
Net earnings (loss) per common share:
Earnings (loss) before cumulative effect of accounting change
for organizational costs $ .56 (.52) (.47)
Cumulative effect of accounting change for organizational costs -- (.08) --
---------- ---------- ----------
Net earnings (loss) per share $ .56 (.60) (.47)
========== ========== ==========
Weighted average outstanding shares 942,173 941,624 941,544
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) $ 526,944 (569,483) (439,378)
--------- --------- ---------
Other comprehensive income:
Unrealized gains (losses) on investment securities
available for sale (739,406) 95,588 (3,498)
Less income tax expense related to investment
securities available for sale 246,037 -- --
--------- --------- ---------
Total other comprehensive income (loss), net of tax (493,369) 95,588 (3,498)
--------- --------- ---------
Total comprehensive income (loss) $ 33,575 (473,895) (442,876)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Accumulated Treasury Comprehensive
Stock Capital Deficit Stock Income (Loss) Total
----- ------- ------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock 3,325 4,988 -- -- -- 8,313
Purchase of treasury stock,
140 shares -- -- -- (1,600) -- (1,600)
Change in unrealized gain
(loss) on securities available
for sale -- -- -- -- (493,369) (493,369)
Net earnings -- -- 526,944 -- -- 526,944
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 $ 4,712,945 4,674,924 (588,405) (1,600) (401,279) 8,396,585
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $ 526,944 (569,483) (439,378)
Adjustments to reconcile net earnings (loss) to net cash provided
(used) by operating activities:
Depreciation, amortization and accretion 227,538 131,191 27,676
Provision for loan losses 152,090 314,800 32,000
Provision for stock awards 8,313 3,800 --
Provision for deferred income taxes (411,122) -- --
Cumulative effect of accounting change -- 78,560 --
Loss on disposal of premises and equipment -- 18,262 --
Change in:
Accrued interest receivable and other assets (203,484) (247,244) (99,321)
Accrued interest payable and other liabilities 49,892 (46,045) 48,983
------------ ------------ ------------
Net cash provided (used) by operating activities 350,171 (316,159) (430,040)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities
held to maturity 900,000 2,185,762 501,734
Proceeds from sales, calls and maturities of investment securities
available for sale 6,728,642 2,835,409 2,040,605
Purchases of investment securities held to maturity -- -- (3,589,858)
Purchases of investment securities available for sale (5,789,470) (16,172,639) (7,548,869)
Net change in loans (15,088,690) (8,447,372) (1,563,200)
Purchase of premises and equipment (1,098,332) (118,357) (948,814)
------------ ------------ ------------
Net cash used by investing activities (14,347,850) (19,717,197) (11,108,402)
------------ ------------ ------------
Cash flows from financing activities:
Net change in deposits 11,222,616 21,336,199 8,665,552
Net change in line of credit -- -- (200,000)
Proceeds from the sale of common stock, net of offering costs -- -- 9,375,756
Purchase of treasury stock (1,600) -- --
Redemption of organization shares -- -- (10)
------------ ------------ ------------
Net cash provided by financing activities 11,221,016 21,336,199 17,841,298
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (2,776,663) 1,302,843 6,302,856
Cash and cash equivalents at beginning of year 7,629,634 6,326,791 23,935
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,852,971 7,629,634 6,326,791
============ ============ ============
Supplemental schedule of noncash investing and financing activities:
Change in net unrealized loss on investment securities
available for sale, net of tax $ (493,369) 95,588 (3,498)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 926,958 541,862 50,731
</TABLE>
See accompanying notes to consolidated financial statements.
14
<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.
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, 1999 and 1998, 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.
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.
15
<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
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, 1999.
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 four different methods as indicators of the
reasonableness of the allowance. The methods used include a risk method
(using internal classifications along with regulatory classifications),
historical charge-offs, comparison to a peer group, and current
classifications based on the loan grading system. The combination of
these results are compared quarterly to the recorded allowance for loan
losses for reasonableness 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.
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 - 40 years
Furniture and equipment 5 - 10 years
16
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 Earnings (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 1999 and 1998, the potential effect of outstanding options would be
anti-dilutive, and therefore is not presented.
For 1997, 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 period.
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 activities 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. SFAS No. 133 is effective for all fiscal quarters
beginning after June 15, 2000, 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.
17
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- -------------------- ------------------- --------------
<S> <C> <C> <C> <C>
U.S. Government agencies $14,637,620 -- 510,618 14,127,002
Mortgage-backed securities 3,100,160 -- 136,608 2,963,553
----------- ----------- ----------- -----------
$17,737,780 -- 647,226 17,090,555
=========== =========== =========== ===========
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- -------------------- ------------------- --------------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
SECURITIES HELD TO MATURITY: 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
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1999, 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.
Securities
Available for Sale
--------------------------
Amortized Estimated
Cost Fair Value
------------- ------------
U.S. Government agencies
1 to 5 years $11,456,963 11,090,526
5 to 10 years 3,180,657 3,036,476
Mortgage-backed securities 3,100,160 2,963,553
----------- -----------
$17,737,780 17,090,555
=========== ===========
Securities with a carrying value of approximately $500,000 as of
December 31, 1999 were pledged to secure public deposits as required by
law.
18
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS
Major classifications of loans at December 31, 1999 and 1998 are
summarized as follows:
1999 1998
----------- -----------
Commercial, financial and agricultural $ 8,712,890 4,187,121
Real estate - mortgage 12,688,651 4,183,017
SBA loans 964,144 325,177
Consumer 2,607,843 1,166,512
----------- -----------
24,973,528 9,861,827
Less: Allowance for loan losses 373,156 198,055
----------- -----------
$24,600,372 9,663,772
=========== ===========
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.
An analysis of the activity in the allowance for loan losses for the
years ended December 31, 1999 and 1998 is presented below:
1999 1998
--------- ---------
Balance at beginning of year $ 198,055 32,000
Provision charged to operations 152,090 314,800
Loans charged off (5,158) (148,745)
Recoveries 28,169 --
--------- ---------
Balance at end of year $ 373,156 198,055
========= =========
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:
1999 1998
---------- ----------
Land $ 8,488 8,488
Leasehold improvements 1,618,707 670,413
Furniture and equipment 531,108 302,274
Construction in progress -- 78,796
---------- ----------
2,158,303 1,059,971
Less: Accumulated depreciation 206,461 94,691
---------- ----------
$1,951,842 965,280
========== ==========
Depreciation expense amounted to $111,770, $78,632 and $25,190 in 1999,
1998 and 1997, respectively.
19
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) DEPOSITS
Maturities of time deposits at December 31, 1999 are as follows:
Maturing in:
2000 $ 15,299,582
2001 555,630
2002 90,329
2003 97,876
2004 641,083
--------------
$ 16,684,500
==============
(6) INCOME TAXES
The components of income tax benefit for the year ended December 31, 1999
is as follows:
Currently payable $ --
Deferred tax expense 30,957
Change in valuation allowance (442,079)
---------
$(411,122)
=========
The differences between the income tax benefit and the amount computed by
applying the statutory federal income tax rate to the earnings (loss)
before income taxes for the years ended December 31, 1999, 1998 and 1997
relate primarily to the benefit of net operating loss carryforwards not
recognized and changes in the valuation allowance.
The following summarizes the components of deferred taxes at December 31,
1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 122,734 65,001
Pre-opening expenses 86,347 120,089
Operating loss carryforwards 218,966 263,938
Net unrealized losses on securities available for sale 245,946 --
Contributions 3,177 4,640
Discount on SBA loans, net 565 729
--------- ---------
Total gross deferred income tax assets 677,735 454,397
Less valuation allowance -- (442,079)
--------- ---------
Net deferred tax asset 677,735 12,318
Deferred income tax liabilities, consisting of premises and equipment (20,667) (12,318)
--------- ---------
Net deferred tax assets $ 657,068 --
========= =========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. As of December 31, 1999, based
upon the projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not that the benefits of these deductible differences will be
realized.
At December 31, 1999, the Company had a federal tax net operating loss
carryforward of $447,000 which will begin to expire in 2018 if not
previously utilized. Additionally, a state net operating loss
carryforward for tax purposes of approximately $1,438,000 will begin to
expire in 2012 if not previously utilized.
20
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) COMMITMENTS
On September 9, 1996, the Company entered into an operating lease
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, 1999 are as follows:
2000 $ 54,000
2001 54,000
2002 22,500
--------
$130,500
========
The total rental expense was $54,000 in both 1999 and 1998.
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.
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, 1999 and 1998,
the Bank has commitments to extend credit of $10,129,000 and $3,534,000,
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 1999 and 1998, the Board awarded 626 shares and 380
shares, respectively, to certain employees based upon their tenure with
the Bank. The fair value of these shares of $8,313 and $3,800,
respectively, 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.
21
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) EMPLOYEE BENEFIT PROGRAMS, CONTINUED
A summary status of the Company's stock option plan as of December 31,
1999 and 1998, and changes during the years, are presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 80,031 $ 10.00 - $ 10.00
Granted during the year - 80,031
------- ------
Outstanding, end of year 80,031 $ 10.00 80,031 $ 10.00
====== ======
Options exercisable at year end 16,006 $ 10.00 - $ 10.00
====== =======
</TABLE>
The weighted average remaining contractual lives of these stock options
were 8.25 and 9.25 years, respectively, as of December 31, 1999 and 1998.
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
for the year ended December 31, 1998 for grants made during 1998 would
have been reduced to the proforma amounts indicated below:
NET LOSS
NET LOSS PER SHARE
-------- ---------
As reported $ 569,483 $ 0.60
Proforma $ 859,195 $ 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, 1999, loans made to related
parties totaled $466,397, repayments totaled $169,298, resulting in an
ending balance of $424,648. As of December 31, 1999 and 1998, related
party deposits totaled $1,975,159 and $1,882,561, respectively.
(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.
22
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) REGULATORY MATTERS, CONTINUED
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, 1999, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1999, 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 Bank's category.
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
------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated $ 8,291,122 22.75% 2,915,639 8.0% N/A N/A
Bank $ 7,478,089 20.70% 2,890,539 8.0% 3,613,174 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 7,917,966 21.73% 1,457,820 4.0% N/A N/A
Bank $ 7,104,933 19.66% 1,445,270 4.0% 2,167,905 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 7,917,966 17.66% 1,793,667 4.0% N/A N/A
Bank $ 7,104,933 16.27% 1,746,440 4.0% 2,183,050 5.0%
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%
</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.
23
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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.
(12) DECATUR FIRST BANK GROUP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
--------- ---------
<S> <C> <C>
Cash and interest bearing deposits $ 172,996 142,681
Investment in Bank 7,173,076 7,178,835
Investment securities available for sale 962,600 1,016,090
Other assets 87,913 18,691
--------- ---------
$ 8,396,585 8,356,297
========= =========
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Shareholders' equity $ 8,396,585 8,356,297
========= =========
<CAPTION>
Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
-------- -------- --------
Income:
<S> <C> <C> <C>
Interest income $ 59,136 70,281 116,883
-------- -------- --------
Expenses:
Interest -- -- 21,887
Salaries and employee benefits 8,313 4,091 102,120
Occupancy and equipment -- -- 37,143
Other operating 35,515 13,549 70,849
-------- -------- --------
Total expenses 43,828 17,640 231,999
-------- -------- --------
Earnings (loss) before equity in undistributed earnings (loss) of
Bank, income taxes and cumulative effect of accounting change 15,308 52,641 (115,116)
Equity in undistributed earnings (loss) of Bank 460,478 (591,333) (324,262)
Income tax benefit 51,158 -- --
-------- -------- --------
Earnings (loss) before cumulative effect of accounting change 526,944 (538,692) (439,378)
Cumulative effect of accounting change for
organizational costs -- (30,791) --
-------- -------- --------
Net earnings (loss) $526,944 (569,483) (439,378)
======== ======== ========
</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
<TABLE>
<CAPTION>
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $ 526,944 (569,483) (439,378)
Adjustments to reconcile net earnings (loss) to net cash provided (used
by operating activities:
Equity in undistributed (earnings) loss of Bank (460,478) 591,333 324,262
Amortization 8,294 927 3,062
Provision for stock awards 8,313 3,800 --
Provision for deferred taxes (51,158) -- --
Cumulative effect of accounting change -- 30,791 --
Change in other -- (9,532) 26,530
---------- ---------- ----------
Net cash provided (used) by operating activities 31,915 47,836 (85,524)
---------- ---------- ----------
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)
---------- ---------- ----------
Net cash used by investing activities -- (520,707) (8,498,605)
---------- ---------- ----------
Cash flows from financing activities:
Change in line of credit -- -- (200,000)
Sale of (redemption of) organization shares -- -- (10)
Purchase of treasury stock (1,600) -- --
Proceeds from sale of common stock, net of offering costs of $39,684 -- -- 9,375,756
---------- ---------- ----------
Net cash provided (used) by financing activities (1,600) -- 9,175,746
---------- ---------- ----------
Net change in cash 30,315 (472,871) 591,617
Cash at beginning of year 142,681 615,552 23,935
---------- ---------- ----------
Cash at end of year $ 172,996 142,681 615,552
========== ========== ==========
Supplemental schedule of noncash financing and investing activities:
Change in net unrealized gain (loss) on securities available for
sale of Bank, net of tax (466,237) 97,868 (3,438)
Change in unrealized gain (loss)on securities available for sale, net of tax (27,132) (2,280) (60)
</TABLE>
25
<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 1999 and 1998, and
the average rate of interest earned or paid thereon.
<TABLE>
<CAPTION>
For the Years Ended December 31
-------------------------------
(Amounts presented in thousands)
1999 1998
------------------------------ -----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets:
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (including loan fees) $ 15,867 1,519 9.57% 5,847 561 9.59%
Investment securities 19,409 1,083 5.58% 14,600 847 5.80%
Federal funds sold 2,468 125 5.04% 4,451 248 5.57%
------- ------ ------- ------
Total interest earning assets 37,744 2,727 7.27% 24,898 1,656 6.65%
Other non-interest earnings assets 3,249 2,878
------- -------
Total assets 40,993 27,776
====== ======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings 13,419 327 2.44% 8,727 251 2.88%
Time 12,108 628 5.19% 6,210 343 5.52%
------- ------ ------- ------
Total interest-bearing liabilities 25,527 955 3.74% 14,937 594 3.98%
--- ---
Other non-interest bearing liabilities 7,343 4,219
Stockholders' equity 8,123 8,620
------- -------
Total liabilities and stockholders' equity 40,993 27,776
====== ======
Excess of interest-earning assets over interest-
bearing liabilities $ 12,217 9,961
====== ======
Ratio of interest-earning assets to interest-
bearing liabilities 147.86% 166.69%
Net interest income 1,772 1,062
===== =====
Net interest spread 3.53% 2.67%
Net interest yield on interest earning assets 4.69% 4.27%
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
26
<PAGE>
TABLE 2
VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
INCREASE (DECREASE) DUE TO CHANGES IN INCREASE (DECREASE) DUE TO CHANGES IN
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (including loan fees) $ 959 (1) 958 1,408 (85) 1,323
Investment securities 268 (32) 236 (59) (1) (60)
Federal funds sold (100) (23) (123) 6 (1) 5
------- ------- ------- ------- ------- -------
1,127 (56) 1,071 1,355 (87) 1,268
------- ------- ------- ------- ------- -------
Interest bearing liabilities:
Interest-bearing demand
and savings 114 (38) 76 87 15 102
Time 306 (21) 285 622 14 636
Other borrowings -- -- -- (22) (1) (23)
------- ------- ------- ------- ------- -------
420 (59) 361 687 28 715
------- ------- ------- ------- ------- -------
$ 707 3 710 668 (115) 553
======= ======= ======= ======= ======= =======
TABLE 3
INVESTMENT PORTFOLIO
The following table presents the investments by category at December 31, 1999
and 1998:
<CAPTION>
<S> <C> <C> <C> <C>
(Amounts are presented in thousands)
1999 1998
-----------------------------------------------------
AVAILABLE FOR SALE Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
United States Treasuries and
Government Agencies $14,638 14,127 17,821 17,913
Mortgage-backed 3,100 2,964 971 971
------- ------- ------- -------
$17,738 17,091 18,792 18,884
------- ------- ------- -------
HELD TO MATURITY
United States Government Agencies $ -- -- 901 905
------- ------- ------- -------
TOTAL $17,738 17,091 19,693 19,789
======= ======= ======= =======
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)
<CAPTION>
Maturities at United States Mortgage- Backed Weighted
December 31, 1999 Treasury and Agencies Securities Average Yields
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
After 1 through 5 years $ 11,091 - 5.86%
After 5 through 10 years 3,036 - 6.31%
After 10 years - 2,964 5.70%
---------- -----
Totals $ 14,127 2,964
=========== =====
</TABLE>
27
<PAGE>
TABLE 4
LOAN PORTFOLIO
The following table presents loans by type at the end of each of the last two
years:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
-----------------------------------
(Amounts are presented in thousands)
<S> <C> <C>
Commercial and SBA $ 9,677 4,512
Real estate 12,688 4,183
Consumer 2,608 1,167
-------- ------
24,973 9,862
Less: Allowance for loan losses 373 198
-------- ------
Loans, net $ 24,600 9,664
======== ======
As of December 31, 1999, maturities of loans in the indicated classifications
were as follows (amounts are presented in thousands):
<CAPTION>
Maturity Commercial Real Estate Total
-------- ---------- ----------- -----
<S> <C> <C> <C>
Within 1 year $ 7,182 8,611 15,793
1 to 5 years 2,189 3,300 5,489
Over 5 years 306 777 1,083
------ ------ -------
Totals $ 9,677 12,688 22,365
====== ====== =======
</TABLE>
As of December 31, 1999, 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 $2,131 58 2,189
Over 5 years -- 306 306
Real estate
1 to 5 years $3,300 -- 3,300
Over 5 years 777 -- 777
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, 1999 and 1998 (amounts are presented in thousands):
December 31,
------------
1999 1998
-------------------------------
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.
28
<PAGE>
TABLE 5
ALLOWANCE FOR LOAN LOSSES
The following table summarizes information concerning the allowance for loan
losses:
<TABLE>
<CAPTION>
December 31,
------------
(Amounts are presented in thousands)
1999 1998
-----------------------------------
<S> <C> <C>
Balance at beginning of year $ 198 32
Charge-offs:
Commercial -- 127
Real estate -- --
Consumer 5 22
----- -----
Total chargeoffs $ 5 149
----- -----
Recoveries:
Commercial 25 --
Real estate -- --
Consumer 3 --
----- -----
Total recoveries 28 --
----- -----
Net (charge-offs) recoveries 23 (149)
Additions charged to operations 152 315
----- -----
Balance at end of year $ 373 198
===== =====
Ratio of net charge-offs (recoveries) during the period
to average loans outstanding during the period (.14)% 2.54%
===== =====
</TABLE>
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 quarterly 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.
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:
<TABLE>
<CAPTION>
December 31,
------------
(Amounts are presented in thousands)
<PAGE>
1999 1998
---- ----
Amount Rate Amount Rate
Demand deposits:
<S> <C> <C> <C> <C>
Non-interest bearing $ 7,277 - 4,082 -
Interest-bearing demand
and savings 13,419 2.44% 8,727 2.88%
Time deposits 12,108 5.19% 6,210 5.52%
------ ------
Totals $ 32,804 19,019
====== ======
</TABLE>
29
<PAGE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows (amounts are presented in
thousands):
Within 3 months $ 2,114
After 3 through 6 months 1,231
After 6 through 12 months 1,246
After 12 months 500
------
Total $ 5,091
======
TABLE 7
SELECTED RATIOS
The following table sets out certain ratios of the Company for the years
indicated.
1999 1998
---- ----
Net earnings (loss) to average assets 1.29% (2.05)%
Net earnings (loss) to average stockholders' equity 6.49% (6.60)%
Dividends to net earnings - -
Average equity to average assets 19.82% 31.03%
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <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 BUSINESS OWNER BUSINESS OWNER
RUTLAND CONTRACTING CO. KAT CONSULTING
JUDY B. TURNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DECATUR FIRST BANK GROUP, INC.
</TABLE>
- --------------------------------------------------------------------------------
DECATUR FIRST BANK
- --------------------------------------------------------------------------------
OFFICERS AND STAFF
OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
JUDY B. TURNER GREG M. AUTREY ANN S. RANDALL
PRESIDENT AND CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT & EXECUTIVE VICE PRESIDENT &
SENIOR LENDER CASHIER
BEVERLY DABNEY JEFF F. COOK DORIS M. SHELTON
VICE PRESIDENT/BUSINESS VICE PRESIDENT/ CORPORATE SECRETARY
DEVELOPMENT COMMERCIAL LENDER
JUANITA MARZETTE DAVID SENIOR
RETAIL MANAGER SENIOR VICE PRESIDENT/
SENIOR CREDIT OFFICER
STAFF
PAM BRADLEY ANGELA CARTER DIANE CHAMBERS
ASSISTANT RETAIL MANAGER LEAD TELLER LOAN ADMINISTRATOR
SHANNON DAVIS CHRISTIE LORD JEFF ORTIZ
CS SPECIALIST CS SPECIALIST OPERATIONS
JESSICA PORTER RON RICE DESHANTE RIGGINS
OPERATIONS COURIER (PART-TIME) TELLER
ARLIA SLOTKIN RENEE WILSON
CS SPECIALIST (PART-TIME) LOAN ADMINISTRATOR
</TABLE>
A COPY OF THE COMPANY'S 1999 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
31
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,863
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,990
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,091
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 24,974
<ALLOWANCE> (373)
<TOTAL-ASSETS> 49,759
<DEPOSITS> 41,224
<SHORT-TERM> 0
<LIABILITIES-OTHER> 138
<LONG-TERM> 0
0
0
<COMMON> 4,713
<OTHER-SE> 3,684
<TOTAL-LIABILITIES-AND-EQUITY> 49,759
<INTEREST-LOAN> 1,519
<INTEREST-INVEST> 1,083
<INTEREST-OTHER> 125
<INTEREST-TOTAL> 2,727
<INTEREST-DEPOSIT> 955
<INTEREST-EXPENSE> 955
<INTEREST-INCOME-NET> 1,772
<LOAN-LOSSES> 152
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,880
<INCOME-PRETAX> 116
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<EPS-BASIC> 0.56
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<YIELD-ACTUAL> 4.69
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</TABLE>
